The Bionic Company
Businesses
need to grow their behavior, cognitive, and network capital to create and
capture value that competitors can’t dislodge.
During the heyday of the Industrial Revolution, few firms
understood the intricate dynamics of financial capital — companies that
pioneered better approaches to business economics had a strong competitive
advantage. As the 20th century unfolded, two additional types of equity became
important: human capital (the return gained from the appropriate development
and deployment of staff and contractors), and natural capital (the manageable
value of land, water, and other environmental resources). Business success came
to depend on managing these three forms of capital effectively. The first two
grew exponentially, seemingly slow in the early years but doubling regularly,
and thus accumulating immense wealth and influence for the companies that knew
how to manage them.
Today, with the accelerating increase of technological innovation,
three more forms of capital have become critical to creating value: behavior
capital (developed by tracking ongoing activity), cognitive capital (the value
inherent in algorithms), and network capital (the connection points, with
people and machines, that a company can deploy). Each of these forms compounds
itself in an exponential way, and each also reinforces the others’ growth. We
sometimes refer to them as collectively as BeCoN capital, because they are most
effective when marshalled together. But they also are as poorly understood as
financial, human, and natural capital were at the dawn of the 20th century.
Companies that manage all
six forms of capital are what could be called bionic corporations: Some of them
have gained immense value in very short amounts of time. For example, five of
the most
highly capitalized companies in the U.S.
stock market are bionic: Apple, Alphabet (Google), Microsoft, Facebook, and
Amazon together account for about 13 percent of the capitalization of the
entire U.S. stock market. Bionic companies have grown rapidly without relying
solely on physical assets such as people and land, or even on managing funds
and investments effectively. Instead, they have grown by building and linking
digitally based cross-boundary platforms that make the most of their BeCoN
capital.
Let’s look more closely at the three new forms of wealth
accumulation that bionic companies deploy.
• Behavior capital is
the collection and modeling of data that tracks the behavior of people,
companies, nature, and man-made things. As an Apple watch captures an ongoing
heart rate, a GE aircraft engine records data on fuel performance, and Google
captures everything about everyone on its platform, the usability of that
behavioral data increases. Apple, GE, Google, and their customers can use that
information to make models of the behavior of the people and machines, and
therefore improve the value of their respective activities.
• Cognitive capital is
the set of algorithms (some transparent to onlookers, others opaque) that
represent the codified knowledge flows of individuals and the enterprise in a
bionic world. These algorithms are becoming sophisticated enough to make many
decisions on their own, or to start a machine-learning process that can lead to
automated, continually improving routines. For example, the giant hedge fund
Bridgewater uses artificial intelligence-based algorithms to make some
decisions. Its cochairman, Ray Dalio, has joked that he is trying to reduce his
staff down to one employee, and thus run entirely on cognitive capital.
• Network capital is
the set of connection points that an enterprise can use to develop and execute
a successful strategy. For example, Netflix has developed, over the years, a
large group of followers who have gotten into the habit of watching shows there
— and who exchange messages with one another on social media about what they’ve
watched. This network increases the value of Netflix’s original series, and
consistently contributes to the value of its programming. Similarly, GE held an
open innovation–style competition for an engine bracket design that would cost
less than US$7,000; although its own engineering team took part, the winner was
a 21-year-old from Indonesia.
As with financial capital, each of these assets can grow in
exponential fashion. The exact rate of growth may vary, but it’s nonlinear; the
assets grow more rapidly than your expectations. They are also mutually
reinforcing — or can at least be designed to reinforce one another. You get
faster growth when you put these forms of capital to work together.
How can your company, which
may be dominated by its “physical” native composition, accomplish something similar? By finding ways to raise the value of your own
behavior, cognitive, and network capital. For example, in 2016, when Amazon
entered the auto parts retail business, its
established brick-and-mortar competitors were complacent. They assumed their
customers would always want a personal connection with the experts in their
stores. But then Amazon offered 30 percent higher premiums to auto
parts manufacturers, using network capital to guarantee itself access.
The online retailer also pairs third-party service providers in parallel
with specific product sales, and tracks its customers’
purchases (behavior capital) to drive algorithms that changed prices and
offers on the fly (cognitive capital). Major auto retailers lost significant
market capitalization.
The venture capital firm SignalFire, with about $380 million
under management, has built a superior position through its BeCoN
assets. SignalFire maintains an extensive database of several types
of talent: software engineers, data scientists, and designers, among
others. It has more than 10 million engineers in the database and it
estimates that it has profiled about 85 percent of all the software
engineers practicing in English. Its algorithms analyze where each
individual went to school, how well they did, where they worked, how
successful the company was, and what contributions they have made to
academia or to open-source projects through sites such as Bitbucket and
GitHub. SignalFire uses this information as a key input into its
investment decision making — along with company performance metrics — to
make sure it is backing the best teams on an absolute and comparative
basis. These are teams that have not only strong credentials but also
proven track records, even if their backgrounds are a bit unusual.
SignalFire can also use these three forms of capital to predict which
people are likely to leave their employers soon, and to find connections
with those individuals. Imagine what type of advantage this gives to a
firm that might be interested in investing in technology companies.
CB Insights ingests massive amount of data to predict future
trends. It processes millions of articles, patent filings, and other documents,
mixing them together in one massive data management system and delivering
results to its analysts, who then publish the conclusions they reach about
technological and financial dynamics. CB Insights’s high levels of behavior and
cognitive capital and the robustness of its networks have led to the
development of tools it is famous for: For example, its market maps allow
anyone to look at an economic sector (such as agricultural technology, life
sciences, or construction) and see at a glance who the top competitors are, and
what they are investing in. This enables them to be more up-to-date and faster,
with a more productive staff and more significant impact. The company’s growing
network of sources and subscribers continues to make it more influential.
GE’s aircraft engine business uses sensors built into its engines
and turbines to generate high levels of behavior capital (i.e., describing what
the engine is doing). Machine-learning algorithms conduct diagnostics and
engine controls, thus providing cognitive capital. GE’s engines around the
world are in touch with one another, generating network capital that allows
insights from one engine to be relevant to all. GE’s operations help it accrue
and reinvest all three forms of capital: For example, its store of data about
engine behavior fans out to staff and customers on the ground, who know more
about the engine’s behavior than the pilots do. When it combines these assets
with cognitive capital, embedded in its software routines, GE can deliver
extraordinary engine maintenance service with high reliability at a very low
cost, requiring fewer extra replacement engines parked around the globe in case
of breakdown. GE’s pricing model reflects this advantage; the company sells its
engines not by the unit, but by the hour of use, just like cloud providers in
the IT field do. This approach helps the company improve its designs and make
more efficient use of its field service and design talent.
Incumbent companies that do not develop their BeCoN capital will
find themselves on the wrong side of the next wave of industrialization. If you
are an executive in an old-style company, a good place to start your BeCoN
development is by asking yourself about each of these three forms of new
capital in turn.
• What do you know about your customers’ behavior (or that of the
end users in your sector)? Do you capture it, analyze it, and model the ways it
might change? If not, why not?
• What can you automate using AI and advanced analytics? How
can you use systems that respond in real time to give customers faster service,
better products, and a more powerful experience?
• How can you build a network in which you are able to not only
manage your customers but leverage your deep knowledge of their behavior,
providing service from other companies in your business ecosystem as well as
your own, packaged in a way that meets your customers’ needs? If you are first
in the demand chain, with the largest network, then you have a deep competitive
advantage.
Finally, while the three new BeCoN forms of capital are critically
important, don’t forget about the other three. FiHuNa capital — your financial
value, the human talent you develop and draw on, and the natural resources you
control — will also be critically important in the years to come. As you make
the most of behavior, cognitive, and network capital, you will reinforce your
growth in general, for all six forms of capital. Companies that haven’t built
up their BeCoN assets won’t be able to catch up.
by Miles Everson and John Sviokla
https://www.strategy-business.com/article/The-Bionic-Company?gko=25219&utm_source=itw&utm_medium=20180227&utm_campaign=resp
No comments:
Post a Comment