From classic value chains to a networked community
Has our enthusiasm about working from home in the COVID-19 era pushed us closer to becoming the networking community of free agents in the labour market that we have been talking about and imagined for years?
I (re)discovered a 2013 TED talk by Philip Evans explaining that trends in data volumes related to the Internet are now predicted to reach levels that have profound implications for strategy formulation and competitiveness across industries.
As a rule, building a business in a capitalist system is based on effective coordination and established relationships in value chains and ecosystems. That lowers transaction costs and ensures the competitive position of commercial companies.
A very significant element of business transaction costs lies in processing and passing on information - and with the development of more readily available large volumes of data and digital tools, the opportunities for new competitors have increased dramatically. That said, the opportunities to pursue new markets across value chains have also dramatically improved. These examples are classics of their time.
Wikipedia Revolution
Back in 2013, Phil Evans pointed to the dramatic evolution of the encyclopedia industry prompted by Wikipedia’s arrival on the scene. Closed, paid, expert forums which provided knowledge for a physical encyclopedia to be sold and distributed to live a quiet life on the family bookshelf became completely unattractive with the invention of Wikipedia. Using crowd-funding and free crowd-sourcing of knowledge and evergreen content, the printing industry was left without a competitive alternative to material supplied by a wide range of more or less reputable domain experts.
Today, the example would probably be how Amazon, through data analysis of consumption patterns and new levels in the digital supply chain, has crossed into a number of industries as a dominant competitor - and so has removed the protection provided in traditional value chains from relationships between suppliers and customers. The 'power-of-insights' is becoming more important than the 'speed-of-trust' – but without one entirely excluding the other.
Under these conditions, the competitive position of well-known players is no longer the starting point for developing business strategy. Instead of competitive positioning against known alternatives, the goal for the strategy is now to define the scope of the business that can be run best across and beyond existing industries and relationships.
Companies' core competencies have become the starting point for that definition. The business model and digital capabilities have become the catalysts for making the most of those competencies in a global market. The same logic applies to knowledge workers at an individual level.
The digital capabilities we have in processing and communicating information, means that core competencies can be made more easily accessible to more employers. That gives us, as individuals, the opportunity to offer skills to different companies, instead of getting a permanent job and trying to make a career within the framework provided by a single organisation. This is the classic distinction between working as a consultant and a permanent employee at an industrial company for example. The difference now is that the value added to larger organisations in the form of accumulated experience, working methods and access to colleagues, and gathering relevant knowledge is being questioned.
A collection of skills
If a company manages to bring together a collection of the right skills for a business initiative using knowledge workers – over the short or long term - they really will have access to a pool of resources that’s far stronger than that provided by internal coordination (and bureaucracy) in large organisations.
Similarly, knowledge workers have better and better opportunities to offer their core competencies in an easily accessible way (low transaction costs) and get more for their efforts in a more flexible framework.
We are now seeing that we can sit at home on video calls and be more effective by talking to multiple organisations. I think that has moved us towards becoming a networking community with more temporary relationships within the labour market. If so, it will also mean a more democratic labour market, where support for a business’ ambitions becomes voluntary as more people make an active decision to engage case by case.
In this way, sustainability, diversity, moral considerations and other social issues can play a greater role in determining how to attract the best skills. For large companies today, this means that they should think carefully about how attractive their strategic ambitions are in terms of attracting talented individuals. A strong brand will no longer be enough to attract talent into permanent employment.
Christian Rehfeld is an AI and transformation expert from PA Consulting
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