Strategy in the Edge Economy

For the last few years, Umair Haque has been writing - on his personal blog and as a contributor to Harvard's Discussion Leader blog - about the need to rethink strategy, competitive advantage and sources of value in today's networked information economy. 

In his recent post, Umair discusses how the current financial crisis is an indication of a broader strategy decay across multiple industries resulting from their use of orthodox competitive strategies that are outdated and worse, corrosive, in today's networked economy. 

"In finance, those lessons achieved a profoundly perverse apotheosis: it was, ironically enough, Wall St itself that finally succeeded in making markets fail faster, harder, and more intensely than anyone dreamt possible.

How? By building what Nouriel Roubini and Paul Krugman have aptly called a shadow financial system: a parallel value chain created to actively obscure and trap information.

So what do we do when orthodox strategy has taught even the market-makers to subvert markets – but still no advantage is to be found? Is the answer simply more regulation? Nope.

No amount of regulation can lock interaction down ...<my edit>... and no amount of regulation can put advantage back into broken value chains."

There’s only one real answer: rethinking strategy itself. A world of cheap, abundant, always-on interaction, where value is shifting to the edges, demands a fresh understanding of what’s truly strategic and what’s not.

Here’s a quick example. Where orthodox strategy advises hiding information and making things less liquid, what does edge strategy advise? Exactly the opposite: release information bottlenecks and make things more liquid.

But there's a much deeper point here; a much bigger reason we need radically different approaches to strategy built for today’s new economics.

It's simple: orthodox strategy doesn't stop at finance. Strategy as shadow-making, moral hazard, and market subversion is rife across the economic landscape, from food, to pharma, to autos, to media. It’s what the industrial-era firm has hardwired into its stale, tired DNA.

If you really want to see the bankruptcy of orthodox strategy in action, click those links - and spend a few minutes thinking about how those industries (and more besides) have spent the better part of a century and countless billions creating more and more elaborate shadows to hide behind.

As in finance, the victimizer is becoming the victim: as interaction accelerates, these industries are increasingly falling victim to the games orthodox strategy so earnestly taught them to play.

Orthodox strategy was made for an industrial massconomy. And that, I think, is the real root cause of the macro crisis: the exploding divergence between today's economics, and strategy trapped in a distant, faded, rusting past – consigning firms to act out, like mute players on a stage, moves bereft of imagination, meaning, and purpose.

The macro crisis isn't really just about Bear Stearns and a handful of banks: rather, as we're all belatedly discovering, orthodox strategy itself is no longer sustainable. For society, for people, and most of all, for the corporation."

As I've covered before, there are a number of new guiding principles and strategies that companies need to use if they are to win - or survive - in today's emerging networked information economy.  Thought leaders have been outlining the implication of these changes for a number of years.  Yet, what hasn't emerged is a set of useful frameworks or tools that help apply these new principles and strategies.

If I distill some thoughts from Umair, Doc Searls, Stowe, Alan, Tim and others, the list of guiding principles starts to look like:

1. Value from hard to recreate data sources that get better with use
2. Focus on the user and all else follows
3. Advantage begins in the DNA
4. Talk less, Listen more
5. Invert orthodox strategy decisions
6. Open > Closed
7. Good > Evil
8. Edge > Core
9. Flow > Data
10. Users > Companies
11. Communities > Brands
12. Adhoc Communities > Directed teams
13. networks, markets and communities
14. transactions, conversations and relationships
15. Two-way flows - Not broadcast
16. Power Laws and Nodes
17. Reed's Law

Okay some might say "big deal", or that these issues are filled with hype and hyperbole.

Yet, we are clearly at an inflection point between orthodox industrial-age economic models and the networked digital economy.  What was once scarce is now abundant.  What was once capital intensive is now free.  What was once centralized at the core of companies and industries, is increasing found at the edge with individual users (or "edglings" as Stowe refers to them). 

These changes aren't superficial. They are not hypothetical. They are not just for "bit" (web) businesses.  They apply to "atom" (physical) businesses too.  They represent structural changes in production and consumption of economic goods of all kinds.  It is an "if / then" situation. If we are seeing structural changes, then the rules of production, consumption, economic value, competition and advantage change too.

With these changes happening, it would be valuable to have a small set of tested strategy frameworks and tools to clarify and instruct choices for new opportunities... and redefining old businesses... at the edge.  The principles outlined above may not be the answer, but they are a good start.

 

Comments

[MikeD]

Great summary.
I looked at the links - food, pharma, etc - interesting stuff.

The food and cars articles pit two factions against each other - centralized governmental decisions against manufacturers. It seems that neither are really 'citizens of the edge'. The red/yellow/green health labels on food sounds simple but doesn't really increase transparency. As one manufacturer of 'sugar foods' said - they listen to the consumer and give them what they want. Isn't that what a market conversation is about?

[Rachel Happe]

Hi Bruce - this is a great post. I've been thinking a lot about the switch from a scarcity environment to an environment of plenty...and how that goes against most of what we've learned over time (see my brief post at: http://rhappe.typepad.com/thesocialorganization/2008/03/scarcity-and-ab.html)

The implications for strategy are huge and it is interesting to see which companies get this and which don't.

Thanks for the great post.

Rachel

[brucemacv]

Thanks Rachel. I agree that the shift from scarcity to abundance creates a very different environment. Companies that recognized this early on are now reaping the rewards... but it is still early. Thanks for the link to your post. You're right... transparency, trust and relationship will drive customer choices. We should add this to our list of things to discuss when we get a chance to catch-up.

[david cushman]

Hi Bruce, thank you for a thoughtful and compelling post. You've nutted down some of the big ideas. And also thanks for visiting my blog fasterfuture.blogspot.com please join the conversation at any intersection you choose.
Best dc