Digital disruption (2)

Thursday, 3 September 2015

by: Qurius

Stacks: The new architecture of business. From the BCG 'Navigating a world of digital disruption' publication.

From competing on similar vertical value chains we will evolve into a much more diverse architecture of horizontal layers: shared infrastructure on the bottom, producing and consuming communities on the top, and traditional oligopolists competing in the middle. Borrowing a metaphor from technology, we call these industrial ecosystems 'stacks'.

Stacks are a compelling model when the benefits of community-based innovation in higher layers and improved utilisation in lower layers exceed the additional transaction costs incurred by breaking up value chains. Falling transaction costs make that trade-off progressively more favourable.

BCG Exhibit 2 Enabled new institutional options with distrinct economies.PNG

But, what cannot be emphasised too much are the differences among these four types of activities. They require different skills and motives, present different financial profiles to investors, and need to be managed on different time horizons.

Note: much of what is broken in today's economy stems from activities pursued with the wrong model.

Implications

Leaders need to focus on asymmetrical rivals and unlikely allies, on hackers and hobbyists. They must adapt their strategies to the possibility of shared infrastructure, to data that wants to be big.

How to respond? Here are four major drivers of the new industrial architecture and their key strategic imperatives for businesses:

  • Big data
    • Test your current analytics against the state of the art
    • Consolidate databases across the company
    • Form partnerships to gain scale
    • Manage data as a trustee (earn the informed trust of customers)
  • Deconstruction
    • Reorganise your business along its economic fault lines
    • Look for opportunities to be the lateral aggressor
    • Identity where your value chain is most susceptible to lateral attack
  • Polarisation of economies of mass
    • Up-source activities to a community
    • Down-source activities to shared infrastructure
  • Holistic, stacked architectures
    • Curate a new industrial stack
    • Where you can't curate your own stack, seek advantaged roles in stacks curated by others
    • Reshape regulation