Clouds, big data, and smart assets: Ten tech-enabled business trends to watch

Here is an excerpt from article co-authored by Byron G. Auguste, Bryan Hancock, and Martha Laboissière and featured by the McKinsey Quarterly online. To read the complete article, sign up for a free subscription (albeit with somewhat limited access), and/or check out other valuable resources, please click here.

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Advancing technologies and their swift adoption are upending traditional business models. Senior executives need to think strategically about how to prepare their organizations for the challenging new environment.

Source: McKinsey Global Institute

In this article, the co-authors examine these ten global trends:

Trend 1: Distributed cocreation moves into the mainstream
Trend 2: Making the network the organization
Trend 3: Collaboration at scale
Trend 4: The growing ‘Internet of Things’
Trend 5: Experimentation and big data
Trend 6: Wiring for a sustainable world
Trend 7: Imagining anything as a service
Trend 8: The age of the multisided business model
Trend 9: Innovating from the bottom of the pyramid
Trend 10: Producing public good on the grid

[Here is the introduction, followed by the discussion of Trend #1. To read the complete article, please click here.]

Two-and-a-half years ago, we described eight technology-enabled business trends that were profoundly reshaping strategy across a wide swath of industries.

We showed how the combined effects of emerging Internet technologies, increased computing power, and fast, pervasive digital communications were spawning new ways to manage talent and assets as well as new thinking about organizational structures.

Since then, the technology landscape has continued to evolve rapidly. Facebook, in just over two short years, has quintupled in size to a network that touches more than 500 million users. More than 4 billion people around the world now use cell phones, and for 450 million of those people the Web is a fully mobile experience. The ways information technologies are deployed are changing too, as new developments such as virtualization and cloud computing reallocate technology costs and usage patterns while creating new ways for individuals to consume goods and services and for entrepreneurs and enterprises to dream up viable business models. The dizzying pace of change has affected our original eight trends, which have continued to spread (though often at a more rapid pace than we anticipated), morph in unexpected ways, and grow in number to an even ten.

[Note: Two of the original eight trends merged to form a megatrend around distributed cocreation. We also identified three additional trends centered on the relationship between technology and emerging markets, environmental sustainability, and public goods.]

The rapidly shifting technology environment raises serious questions for executives about how to help their companies capitalize on the transformation under way. Exploiting these trends typically doesn’t fall to any one executive—and as change accelerates, the odds of missing a beat rise significantly. For senior executives, therefore, merely understanding the ten trends outlined here isn’t enough. They also need to think strategically about how to adapt management and organizational structures to meet these new demands.

For the first six trends, which can be applied across an enterprise, it will be important to assign the responsibility for identifying the specific implications of each issue to functional groups and business units. The impact of these six trends—distributed cocreation, networks as organizations, deeper collaboration, the Internet of Things, experimentation with big data, and wiring for a sustainable world—often will vary considerably in different parts of the organization and should be managed accordingly. But local accountability won’t be sufficient. Because some of the most powerful applications of these trends will cut across traditional organizational boundaries, senior leaders should catalyze regular collisions among teams in different corners of the company that are wrestling with similar issues.

Three of the trends—anything-as-a-service, multisided business models, and innovation from the bottom of the pyramid—augur far-reaching changes in the business environment that could require radical shifts in strategy. CEOs and their immediate senior teams need to grapple with these issues; otherwise it will be too difficult to generate the interdisciplinary, enterprise-wide insights needed to exploit these trends fully. Once opportunities start emerging, senior executives also need to turn their organizations into laboratories capable of quickly testing and learning on a small scale and then expand successes quickly. And finally the tenth trend, using technology to improve communities and generate societal benefits by linking citizens, requires action by not just senior business executives but also leaders in government, nongovernmental organizations, and citizens.

Across the board, the stakes are high. Consider the results of a recent McKinsey Quarterly survey of global executives on the impact of participatory Web 2.0 technologies (such as social networks, wikis, and microblogs) on management and performance. The survey found that deploying these technologies to create networked organizations that foster innovative collaboration among employees, customers, and business partners is highly correlated with market share gains. That’s just one example of how these trends transcend technology and provide a map of the terrain for creating value and competing effectively in these challenging and uncertain times.

1. Distributed cocreation moves into the mainstream

In the past few years, the ability to organize communities of Web participants to develop, market, and support products and services has moved from the margins of business practice to the mainstream. Wikipedia and a handful of open-source software developers were the pioneers. But in signs of the steady march forward, 70 percent of the executives we recently surveyed said that their companies regularly created value through Web communities. Similarly, more than 68 million bloggers post reviews and recommendations about products and services.

Intuit is among the companies that use the Web to extend their reach and lower the cost of serving customers. For example, it hosts customer support communities for its financial and tax return products, where more experienced customers give advice and support to those who need help. The most significant contributors become visible to the community by showing the number of questions they have answered and the number of “thanks” they have received from other users. By our estimates, when customer communities handle an issue, the per-contact cost can be as low as 10 percent of the cost to resolve the issue through traditional call centers.

Other companies are extending their reach by using the Web for word-of-mouth marketing. P&G’s Vocalpoint network of influential mothers is a leading example. Mothers share their experiences using P&G’s new products with members of their social circle, typically 20 to 25 moms. In markets where Vocalpoint influencers are active, product revenues have reached twice those without a Vocalpoint network.

Facebook has marshaled its community for product development. The leading social network recently recruited 300,000 users to translate its site into 70 languages—the translation for its French-language site took just one day. The community continues to translate updates and new modules.

Yet for every success in tapping communities to create value, there are still many failures. Some companies neglect the up-front research needed to identify potential participants who have the right skill sets and will be motivated to participate over the longer term. Since cocreation is a two-way process, companies must also provide feedback to stimulate continuing participation and commitment. Getting incentives right is important as well: cocreators often value reputation more than money. Finally, an organization must gain a high level of trust within a Web community to earn the engagement of top participants.

Further reading:

Jacques Bughin, Michael Chui, and Brad Johnson, “The next step in open innovation,” mckinseyquarterly.com, June 2008.

Michael Chui, Andy Miller, and Roger P. Roberts, “Six ways to make Web 2.0 work,” mckinseyquarterly.com, February 2009.

Josh Bernoff and Charlene Li, Groundswell: Winning in a World Transformed by Social Technologies, first edition, Cambridge, MA: Harvard Business School Press, 2008.

Clay Shirky, Here Comes Everybody: The Power of Organizing Without Organizations, reprint edition, New York, NY: Penguin, 2009.

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About the Authors: Jacques Bughin is a director in McKinsey’s Brussels office; Michael Chui is a senior fellow of the McKinsey Global Institute; James Manyika is a director in the San Francisco office and a director of the McKinsey Global Institute.

The authors wish to acknowledge the important contributions of our colleague Angela Hung Byers.