For John Hagel – co-chairman of the Silicon Valley-based Deloitte’s Center for the Edge and a member of the Singularity University – traditional methods and business models no longer apply in a rapidly changing world. The key is in shifting the focus from scalable efficiency to scalable learningDecember 2019 | February 2020
In a rapidly changing world, with new business dynamics and new demands from clients, the traditional methods are no longer a guarantee for success. Companies must redefine their growth strategies, their business models and the sheer notion of work in order to keep up with the changes and thrive. For John Hagel – co-chairman of the Silicon Valley-based Deloitte’s Center for the Edge and a member of the Singularity University –, the key is in shifting the focus from scalable efficiency to scalable learning. Hagel spoke about these challenges to Mundo Corporativo during his most recent visit to São Paulo, when he attended the 2019 edition of the SingularityU Brasil Summit, sponsored by Deloitte.
You often talk about transformation from the edge in your articles and lectures. How should companies address that?
We focus on the edge more around the challenge of transformation and innovation. For most companies, innovation is coming up with a creative new product or service to expand or get into a new market. Transformation, on the other hand, leads you back to the most basic question of which business they are we really in – or should they be in? And do they need to rethink everything they do in order to support that new kind of business? Transformation is much more challenging for it forces you to question everything and to change everything. In that context, the best way to drive the transformation of large companies is through the edge. That means finding an area that is relatively modest in terms of revenue or profits for the company, but has the potential to scale to the point where it will become the new core of your business, if you understand the exponential forces that are driving change. It is not about just having some additional revenue or initiatives. It is about driving transformation by scaling the edge rather and trying to transform the whole company at once.
What are the main points of attention when pursuing this model?
One of the things that we recommend to companies is to find an edge that is additive to your existing business, to avoid competing with and cannibalizing your existing business. Ideally, you will add a new source of revenue and profits or new customer services. Because if you are competing with the core, that tends to mobilize the resistance from the organization – the natural thing is to want to shut down a competitor. On the other hand, there is an untapped opportunity that in rapidly changing times, you can restructure an entire market or industry in ways that would create much more value and opportunity for you and your customers.
You must have a long-term vision to accomplish this kind of transformation. How many years of planning are necessary?
This is the tricky part in this mindset. We have developed an approach we call “zoom out / zoom in”. The zoom out piece is looking ahead at what our industry will look like from 10 to 20 years from now and deciding the kind of company or business you need to be to be successful in the future. It is a long-term view, but it can also be very helpful to look at what is going on today. And imagine there is something that is relatively minor today but given the changes that are occurring in the market it has the potential to scale again to become the new core of your business. That is the zoom in part. It is a continuous movement – forcing yourself to look far into the future to see where the big opportunity is and driving the transformation there, all the while keeping focus on the present.
What is the key to thrive in this revisited business world?
One way we have of describing it is that the most successful businesses in the past were driven by a model of scalable efficiency, the way to be successful was to become more and more efficient at scale. In a world that is more rapidly changing, the traditional model does not work quite so well anymore. Efficiency has diminishing returns – the more efficient you become, the longer and harder you have to work to get that next increment of efficiency. The irony is the more successful you become, the harder it is to become even more successful. On the other side, given the rapid changes that are going on in the economy worldwide, the key is to learn faster. If you are just relying on what you did in the past, you are going to become more and more disconnected from the changes that are going on outside. You have to learn about what changes are happening and what do you need to do to create more value in that world. The companies that will be most successful in the future are those that focus on what we call scalable learning, learning faster at scale, and delivering more and more value to the marketplace. That actually sets up increasing returns opportunities, where the more you learned, the more value you can deliver to the marketplace. It is a very big challenge to move from scalable efficiency to scalable learning.
How are traditional industries adapting into this reality?
Most companies are under increasing pressure from their investors to grow more rapidly and the discussion usually focuses on two options: either to invest into the company and build the growth organically or go out and make a big acquisition. There is a third path to growth though, the leverage growth, which is the notion that you can grow by mobilizing third parties to add more and more value to your customers and collect some of that value. In this model, you capture value for being the orchestrator of these ecosystems, rather than going out and buying it or doing it all yourself. That is a very powerful form of growth but most companies are not even thinking about it. The opportunity is to find ways to participate on platforms where you can pull out the right people and the right resources at the right time to meet whatever the current demand is. That is a very different way of running businesses.
The fashion industry is rapidly evolving into this model. We have spent some time studying a company in China that serves apparel designers and global brand names. They basically coordinate all the needed resources from sourcing of raw material through all the stages of production and logistics to deliver clothing anywhere in the world, and they do it very flexibly so that as demand shifts, they can respond accordingly. They have created a global platform of 15,000 business partners, with a very diverse set of participants in order to do that. It is all about being able to connect expertise and capability in a much more flexible way wherever and whenever you need it.
Most companies are eager to adopt new technologies in order to drive innovation. How do you see the future of work in this scenario?
Computer algorithms can in fact do highly standardized and integrated tasks much more efficiently than human beings can. They do not make mistakes, they do not get sick, and they do not get distracted. We believe the machines are going to take over all of that. And that is good news because it means we can now step back and redefine work, so that we focus everyone in the organization on addressing unseen problems and opportunities to create more and more value. Workers from every part of the organization are constantly confronted with new situations where there are problems, challenges and opportunities to create more value, but they do not have any time to address those because they are focused on routine tasks. We must free up time to figure out these questions. It really taps into what makes us uniquely human, things like curiosity, imagination, creativity, emotional intelligence. Social intelligence really redefines work in a way that is much more fundamental for humans, but also creates enormous value for the institutions.
As human beings, we have an infinite potential set of needs. As soon as our basic needs are met, we have a new set of needs. So as humans as customers, we are going to be constantly wanting more and more. And I think the challenge and opportunity for companies is to push workers on seeing those unmet needs, so that they can now concentrate on creating more value for the company and for the customer and for themselves as they achieve more of their potential.
How are leaders addressing these changes?
I think there is increasingly a sense from executives around the globe that the world is changing in ways they do not really understand. Part of the need is to build more awareness of how these changes are developing. There is also the fear of taking risks. Innovation by definition is not proven in advance and there are risks associated with being innovative. Large companies have a culture of minimizing risk. At the Center for the Edge we study the forces that are reshaping the economy and the traditional ways of doing things are less and less successful. Companies must capture the opportunities that are becoming available. They have to be innovative, they have to do things that they have not done before and find ways of creating new forms of value – so that requires innovation.