MAP Insights
By Niceto S. Poblador
Facing up to the managerial challenges of the Fourth Industrial Revolution
The theme of the World Economic Forum (WEF) which was held in Davos, Switzerland over the four-day period of January 22–25, 2019, was “Globalization 4.0: Shaping a Global Architecture in the Age of the Fourth Industrial Revolution.”
The conference focused on four global transformations that will define the next wave of globalization. Among these, the one that is certain to have the most cathartic and far-reaching impact on the way business is organized and conducted today is the bewildering array of technological changes wrought by the ongoing Fourth Industrial Revolution (4IR), and the amazing speed at which these developments are taking place. The uncertainties posed by the 4IR is unquestionably the most unsettling among the many issues facing the well over 1,000 corporate CEOs and business leaders who attended the WEF in January 2019.
A major concern among today’s distraught corporate CEOs and COOs is how to adapt quickly enough to the rapid and unpredictable changes taking place under the chaotic conditions that prevail in today’s business environment.
There is an emerging consensus that in order to survive and remain viable in today’s extremely volatile world, businesses must be organized for maximum flexibility.
THE DIGITAL PLATFORM BUSINESS MODEL
The past several years have seen the emergence of companies across many industries that employ what are known as digital platforms, a collection of cloud-based software and services that allow businesses to form extended networks of interactive product users and providers. The peer-to-peer ride-sharing company Uber and the hospitality service firm Airbnb are easily among the best-known businesses in this genre.
The term “digital platforms” includes anything from social platforms, such as Facebook and YouTube, to search engines (Google, Bing, Yahoo!), to online merchandisers like Amazon and Alibaba. Digital platforms typify today’s sharing economy, and appear to have universal applicability.
The digital platform business model (DPBM) is a special case of extended value networks (EVNs) consisting of highly interacting players that include customers, owners of physical assets, producers of goods and services, government regulatory agencies, and so on. These ongoing transactions are overseen by business organizations that serve as network nodes for EVNs. The continuous tracking and sharing of information on ongoing transactions, decisions and processes taking place in these EVNs is facilitated by powerful computer software supported by advanced technologies, such as voice recognition and other sensor applications.
DPBMs allow businesses to capture value by facilitating interaction between transacting parties and interconnecting extended networks of users, resource owners, and producers that can be accessed on demand. They create large communities of potential users and suppliers and permit them to scale up transactions among themselves using the Internet, and in this way create value through network effects.
Most importantly, DBPMs give businesses the needed flexibility to adapt with ease to the swirl of technological, market, regulatory, and other changes taking place continuously in their immediate domains — and in the world beyond.
An extensive 2018 study of business organizations around the world showed that the most successful businesses today are those that have adopted DPBMs. These include seven of the world’s top 10 companies — a list that includes Amazon, Apple, Alibaba and Microsoft, and an equal percentage of so-called “unicorn” startups, such as Airbnb, SpaceX, and Grab. Yet, the report observes, fewer than 2% of all companies studied have done so. Undoubtedly, only a small number of the remaining 98% are prepared to adopt the DPBM.
The platform business model can very well serve as an exemplar for tomorrow’s business organizations.
BLOCKCHAIN: A POWERFUL ENABLING TECHNOLOGY
Blockchain, also known as distributed ledger technology, is a transformative enabling technology for the creation and implementation of DPBMs. According to commentary from Fortune magazine:
“… Blockchain has the potential to fundamentally change how we share information, buy and sell things, interact with government, prove our identity, and even verify the authenticity of everything — from the food we eat to the medicine we take to who we say we are. It will also augment other advanced technologies: For example, supercharging both artificial intelligence and the Internet of Things. When you consider moving from the identity of humans to the identity of companies to connected devices to bots, the possibilities become truly endless.”
In essence, Blockchain is a technology that ensures permanence, transparency and privacy in the record keeping of transactions among multiple parties, and provides real-time access to a single source of verifiable information on these transactions. What we have in Blockchain is “an Internet of value — a secure platform, ledger, or database where buyers and sellers could store and exchange value without the need for traditional intermediaries.”
THE CHANGING ROLE OF LEADERSHIP
Business organizations are complex systems that comprise highly interactive components that continuously adapt to each other and to their continuously changing environments. Any change that takes place within the system and its environment, no matter how small, is bound to have ripple effects elsewhere in the system (a phenomenon popularly described as the “butterfly effect”). Organizational managers should, therefore, refrain from focusing on narrowly defined problems, specialized operations or specific issues, and should avoid making changes in any part of the organization without first ascertaining their overall impact.
Adapting to complexity requires us to challenge traditional concepts of leadership. Gone are the days of the archetypal “great leader” who knows best what needs to be done to enhance organizational performance, and who has the necessary personal skills to effectively goad, inspire or intimidate others to play their assigned parts.
In today’s knowledge-driven world, the exemplary leader is not necessarily the one who is the most knowledgeable but one who knows who in the organization or elsewhere has the relevant knowledge and expertise. Her main responsibility is to manage interphase, to create an organizational structure and culture that allows a large number of individual experts both within and outside of the organization to come together in a massive collaborative effort. Her role is not to initiate action but to create context. Her main concern is not to show the way but to set the tone. Organizations must, therefore, be given the utmost opportunity to create their own self-organizing dynamics — with a minimum of administrative control and directions from persons of authority.
The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP.)
Dr. Niceto “Nick” S. Poblador is a member of the MAP Corporate Governance Committee and a retired U.P. Professor of Economics and Management.
