Moore's Law Is Bringing Abundance to Your Business

Examples like Narayana Health are evidence, as we see it, of a wide-scale trend. As core processes become instrumented and digitized, entirely new thresholds of price, quality, and customization are being created for customers. This phenomenon is at the center of the success and scale of both Spotify and WeWork, for example, as these companies create abundance by automating the matching of supply and demand in their respective markets.

But what organizations such as NH, Betterment, and Airbnb have all learned is that setting a new price point is not a one-time thing. Instead, it is a continual process. Why? Because once automation takes hold of your product's innards—that is, as their creation and delivery transition from being human-based to machine-based—they will become inherently tech-centric, and thus able to benefit from the power of Moore's Law. This foundational building block of the tech industry has been the bedrock of innovation and affordability for decades, but hasn't had an effect on the cost of insurance policies, doctor's visits, or educational tutoring services, which all cost about the same as they did 20 years ago.

That's about to change, however, as many products and services become digital to the core. As we described in Chapter 7 (on automation), your knowledge processes are about to become radically more efficient. When automation is focused on internal processes, you can achieve substantial savings. And when automation is focused on your products and services, the benefits should accrue to your customers in the form of abundance.

As product managers in Silicon Valley plan for products two years out that are double the performance and/or half the cost, you should now be thinking along similar lines with your information-based products and services. We realize it can be intimidating to look at your best-selling products and services and think, “Those will have to cost less than half their current price in five years,” but such is the competitive challenge in the new machine age.

Obsess About the Start-Up Community

FinTech, HealthTech, InsuranceTech, LawTech, and GovTech.

These industry movements all have abundance at their core. They are well funded. And those launching these industry disruptors are more than happy to talk about themselves.

Make sure you and your colleagues are listening.

To that end, you should have a team focused exclusively on the new companies that are coming after your business. It doesn't really matter where such a group is placed; we have seen this role inside the strategy function, in R&D, under the chief digital officer, or within IT. The key is that this team should be empowered to take an objective view of the tech-based companies that are looking to bring abundance to your industry and potentially to eat your lunch in the process.

Have this team draw up a “market map,” which examines all the offers your company provides and juxtaposes them against the start-up community. For each offer, the team should determine how many start-ups exist in that space, how much money has been invested in them (and by whom), and the maturity and customer-count of such firms. The team should update the map on a quarterly basis, because such a dynamic view will very clearly expose which new ideas are gaining customer traction.

When done properly, such market maps will provide you with a clear picture of threats and opportunities. For example, there may be a dozen start-ups clumped around one of your core products. In this case, Silicon Valley clearly is coming for that portion of your company, and you need to marshal an appropriate response right away—whether it be to buy, to build, or to partner to address the threat.

Similarly, such market maps can save you a lot of heartache by avoiding failed initiatives. When it comes to abundance, there are more failures than successes. OPM (i.e., “other people's money”) R&D is the best form possible. Let others waste their money and time in learning that a certain abundance idea won't work.

The key to this dedicated team's success is to grant them true objectivity in both organization and orientation. Allow them to ask dumb questions. Liberate them from hidebound orthodoxies; in times of new abundance, good companies go bad when established managers are constrained by tradition. (Just ask the former teams from Blockbuster or Kodak or Nokia.) Initially, a new offer will nearly always look inferior, flawed, or irrelevant. Your more experienced managers, who grew up with traditional industrial offers, may be dismissive of proposed abundance offers. They'll find scenarios in which they won't work (and will often point to issues such as channel conflict, security, or regulation). To save your abundance team from such constrained thinking, it's vitally important to provide them with the right structure, incentives, and (when necessary) protection to keep the company on the cutting edge in times of change.

Ask Your Sharpest Employees to Kill Your Company

Perspective matters. You have employees—sometimes millennials younger than 32 along with others who simply have fresh thinking—who can offer a unique and highly valuable point of view regarding your traditional industrial-model company. As a best practice, ask a group of them to build a company killer. That's right: ask them for ideas on how to put your company out of business.

In many ways, forward-leaning associates are living in a parallel universe, which we call the “Sunday night, Monday morning” phenomenon. That is, on Sunday night they are using digital platforms to manage their personal affairs—entertaining themselves, connecting with friends, shopping, and handling their households and finances, often all at the same time. Their smartphones truly are the remote controls for most of their lives. Then, when they arrive at work some eight hours later, they must reenter the old physical world, supporting an organization that has been operating as it has been for decades.

This Sunday/Monday dichotomy can be both jarring and frustrating for these employees, as they (rightfully) ask, “Why can't work be as seamless, friction-free, and engaging as my home life?” They know one is the future, the other the past.

To that end, instead of letting these associates wallow in frustration, ask them to architect the future. Specifically, ask them to come up with five new tech-based products or services that would put your company out of business. You might be surprised with how quickly (and passionately) they come up with their suggestions.

Play the “Tomorrow It's Free” Game

Look at your company's most expensive, premium-level, differentiated products and services. Now imagine them at 10% of the market price. Scary? No doubt, given that you've just imagined a hollowed-out revenue stream. It's concerning, but this increasingly common development is what you need to prepare for; if it can happen in heart surgery, it can happen anywhere.

Playing “tomorrow it's free” isn't so much of a glib game as a serious exercise in setting strategy around abundance markets. This means leadership must ask hard, even painful, questions about the implications of current products and services moving from expensive and rare, to cheap and nearly ubiquitous.

Engaging in this experiment will introduce real risks and challenge long-standing orthodoxies. In the life-sciences industry, for example, imagine all your drugs and devices off patent. Imagine more of your therapies tailored to an individual's genome (sensitive to our specific DNA, epigenome, microbiome, and virome).⁶ How can you use information to create more value associated with your high-priced compounds? How can you leverage systems of intelligence to create new ecosystems of offerings around such bespoke medicines? These are the kinds of questions you and your teams should be asking.

And what happens if you're in retail? If so, you're already living through the new Amazon epoch. You know that people still want to go to a physical store, but imagine if nobody bought anything there (“showrooming” at an exponential level). How can you continue to create a sticky customer experience with new machines? How can you grow your digital revenue from single digits to double digits over the next few years? Some retailers are already making bold moves along these lines. Walgreens, for example, is using a conjunction of technology and its physical retail presence to begin offering lower-cost, high-volume health care.⁷

Of course, nothing will truly be free; one way or another, you need to find ways to grow revenue. Yet we have found this exercise to be healthy, for it breaks associates from their ingrained supply-based thinking. Most of us (consciously or unconsciously) conceive of our companies' products or services as the sum of their parts, which all adds up to a certain price. When we are forced to completely flip this perspective to demand-side thinking (and even very selfish, “I want it for free” thinking), completely new perspectives can arise. If you're not looking at your current portfolio of products and services and playing the “tomorrow it's free” game, prepare to be surprised, because your competitors known and unknown certainly are.

Manage Your Innovator's Dilemma

The strategy of building products or services that you sell at one-tenth the cost of your existing offerings is not without its challenges. Chief among them is the question of how such prospective products or services—priced very differently, aimed at very different customer segments, and entailing very different economics and management models of production, distribution, and margins—coexist within the same overall portfolio of market offerings? Frequently asked questions of this approach include:

• How can we make a profit if we drop our prices 90%?
• Won't we cannibalize our existing market?
• Do we have the right brand to operate in new markets?
• Do we have the right people, with the right skills, to operate in low-cost markets?

Such concerns are well-founded and on point. Moving into abundance-based markets is nontrivial. In fact, perhaps the most influential business book of the past 20 years—The Innovator's Dilemma, by Harvard Business School professor Clayton M. Christensen—tackles exactly this challenge, although it was written in 1997 before software really began eating the world and does not expressly address disruption created by platforms and cloud computing, let alone systems of intelligence.

Inspired by Christensen and refined by our work with clients, we have identified three key concepts that are effective in handling these challenges:

1. The Three Horizons Model: Initially popularized by McKinsey & Co., the Three Horizons Model (THM) recognizes the need to separate an overall business into three distinct parts focused on whether they address the immediate concerns of today's market, the market's needs in the short-term future, or those over a longer time period (hence three horizons).⁸ The model aligns the right resources (staffing, ROI expectations, management metrics, etc.) to the right horizon; there is no point, for example, in expecting a new service operating in a nascent market niche to yield the same fat profit margin that a well-established service in a mature market commands. Derivations of this approach include Gartner's Bimodal IT strategy, which structures the IT function into two groupings, one focused on “legacy” technology and one on “next-generation” technology.
2. The Ellison-Benioff Model: At the dawn of the cloud computing wave, Oracle co-founder Larry Ellison invested $2 million in his youngest-ever vice president Marc Benioff's start-up, Salesforce.com.⁹ Benioff had been trying to convince Ellison that cloud computing was an important trend but Ellison remained unmoved, seeing only the complexities of managing an inherently “anti-Oracle” idea within his core business.¹⁰Instead, Ellison became Benioff's initial seed investor, wished him well, and watched as his investment blossomed into a $450 million holding in Salesforce. Funding external start-ups to pursue abundance-based models short-circuits many of the intra-business unit problems associated with developing a disruptive idea within a large company.
3. The LVMH Model: French holding company LVMH Moët Hennessy Louis Vuitton SE manages more than 60 subsidiary companies that operate independently within its umbrella.¹¹ Although some back-office functions are shared across the different companies—including many famous brands, such as Bulgari (jewelry, watches, and luxury goods); TAG Heuer (watches); Fendi (luxury fashion); and Thomas Pink (luxury clothing)—they all, for the most part, pursue their individual markets in their own ways. The LVMH model does not try to squeeze disparate products, which often have overlapping market segments, into neatly confined niches, nor does the company attempt to address competitive tensions between its different brands. The LVMH approach, which has become increasingly influential in recent years, allows the company's various subsidiaries to approach the market in differing ways. New ideas find room to breathe within this structure.

Make Like a Maker

One source of inspiration and talent focused on leveraging abundance is the “maker” movement.¹² Growing organically as a subculture within technology circles in recent years, the movement comprises individuals, teams, and companies enthusiastic about building new devices (and tinkering with existing ones) that live at the intersection of new functionality and low cost. For example, makers take old crafts such as woodworking or metalworking and mix those with new skills around 3-D printing and robotics to reassert the value of making things rather than just using things made by big multinationals in faraway places.

Makers are typically engineers (professional and amateur) by background and entrepreneurial in spirit, and are often at a point in their careers when they're not fully “out on their own” with their pet idea or their true work. We find many such makers on our travels working in big companies who, while holding down their day job, are itching to really focus on their weekend avocation. Don't look upon such individuals as uncommitted to the work at hand; rather, harness their talents, energy, and passions by putting them in places and positions in which their personal innovations can become your corporate innovations.

If Steve Wozniak's Apple 1 had been a Hewlett-Packard product in 1976, the entire history of the high-technology industry would likely have been very different.¹³ Many companies are already sponsoring “maker spaces” within their communities for civic reasons, but they are more fully embracing makers as part of an innovation ecosystem and as an important (and cost-effective) way of sourcing abundance-related ideas that otherwise would likely be invisible.

Think Like a Corner Shop: The New Personalization

A dramatically lower price point is only one threshold of abundance. A second and equally important touchstone is greatly increased personalization.

In much the same way that the proprietor of the old corner shop knew the personal needs and quirks of all his customers, the new abundance affords you the same opportunity. This is not a function of scale; after all, look to the personalization Facebook provides its 1.7 billion users. It's simply a function of applying the new machine to establishing one-to-one connections with your customers.

It's easier said than done for 100-year-old companies. Industrial companies have been fantastic at the one-to-many business model. After all, that was their goal, and their entire value chains and customer value propositions were focused on this pursuit. Mercedes delivers top-end quality in all of its automobiles. Marriott offers a consistent lodging experience for its business travelers, regardless of location.

But one-to-many product capability is now table stakes. The new competitive battleground is focused on truly being one-to-one and thereby unearthing new abundance Thus, the individualized capabilities outlined in Chapter 8 on Halos are central to the new abundance.

As we noted earlier, personalization is now the new battleground in the athletic apparel industry. Under Armour has burst onto the scene to become a tier-one competitor with Nike and Adidas. Now it is looking to go further, by leveraging technology to provide one-to-one experiences with its customers. Said CEO Kevin Plank:

Imagine you're traveling in Chicago for work. You went for a run one morning, and you had a cold the day before. It's 7 degrees in Chicago, so I know your nose was probably running the whole time. Well, we make this great run glove—we call it the snot finger glove, because it's got basically a microfiber personal Kleenex attached to it so you can rub your nose. Imagine if I could send you an ad that says, “Hey, are you going to be in Chicago for another day? Would you like us to send you a pair of gloves?”¹⁴

Knowing just when and where you need the snot finger glove—now that's one-to-one personalization that can open up entirely new abundance markets.

Apply “Digital Taylorism”

New abundance is, first and foremost, all about finding dramatic cost savings to open new markets. How best to find these breakthroughs? By tying the new technologies of AI to the old management principle of Taylorism (a concept we first broached in Chapter 6).

A century ago, industrialized societies became obsessed with measurement in an effort to drive efficiencies and boost quality in the manufacturing process. The father of the management consulting industry, Frederick Winslow Taylor, introduced the idea of scientific management to the early 20th century industrial production line with his book The Principles of Scientific Management. ¹⁵ Taylor advanced the idea that almost every work activity in a factory could and should be broken down into discrete tasks and measured in time, motion, and output. More important, performance levels and best practices could be codified and replicated. Such thinking became foundational to the industrial model, driving new levels of coordination, output, and quality.

At the time, some decried Taylorism, pointing to what they saw as its dehumanization and removal of the individual decision-making of traditional craftsmen. But economics ultimately won out; Taylor's ideas led to a global trend, and the scientific decomposition of work allowed industrial best practices to spread far and wide, across industries and geographies.

Today's hyper-instrumented and analyzed world is taking Taylorism to entirely new levels. Knowledge work can be studied and optimized in the way industrial work was a century ago. This will have far-reaching implications for the future of your work and for the competitiveness of your company.

Digital Taylorism's ideas are particularly important for digitally focused innovations within large organizations. Innovation is inherently messy, but it needn't be chaotic. Many companies attempt to lower costs to expand markets, but many initiatives fail because of a sense of “ownership.” The mandate to “think differently” is something, we've often seen, that goes missing in action. The rigor and metrics associated with digital Taylorism seem to become sacrificed to a loosening of the conventional business disciplines that hold sway in the established parts of the business. Insisting on applying the highest standards of organizational and process best practices from the era of Taylor to our digital economy can help organizations inject a philosophy of standardization and continuous improvement into their digital efforts.