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Summary:

We like The McKinsey Quarterly, and today three of its consultants published a report on eight emerging technology trends they think will shape markets and economic growth in the coming year(s). These trends ought to inform your next business plan – or any new initiatives you’re […]

We like The McKinsey Quarterly, and today three of its consultants published a report on eight emerging technology trends they think will shape markets and economic growth in the coming year(s). These trends ought to inform your next business plan – or any new initiatives you’re considering for your current startups.

We’ve compressed the lengthy report for your reference. Read the full text here. (Audio download is also available.) With each trend, McKinsey offers a caution. Pay attention to these. The second half of our post is a comprehensive list of the authors’ “further reading” resources. Paste it on your wall.

The authors begin…

Technology alone is rarely the key to unlocking economic value: companies create real wealth when they combine technology with new ways of doing business. … we have identified eight technology-enabled trends that will help shape businesses and the economy in coming years. These trends fall within three broad areas of business activity: managing relationships, managing capital and assets, and leveraging information in new ways.

A. Managing relationships

1. Distributing cocreation

The Internet and related technologies … allow companies to delegate substantial control to outsiders—cocreation—in essence by outsourcing innovation to business partners that work together in networks. By distributing innovation through the value chain, companies may reduce their costs and usher new products to market faster by eliminating the bottlenecks that come with total control.

The Caution:
Companies pursuing this trend will have less control over innovation and the intellectual property that goes with it, however. They will also have to compete for the attention and time of the best and most capable contributors.

2. Using consumers as innovators

Consumers also cocreate with companies; the online encyclopedia Wikipedia, for instance… Companies that involve customers in design, testing, marketing (such as viral marketing), and the after-sales process get better insights into customer needs and behavior and may be able to cut the cost of acquiring customers, engender greater loyalty, and speed up development cycles.

The Caution:
But a company open to allowing customers to help it innovate must ensure that it isn’t unduly influenced by information gleaned from a vocal minority. It must also be wary of focusing on the immediate rather than longer-range needs of customers and be careful to avoid raising and then failing to meet their expectations.

3. Tapping into a world of talent

… Much as technology permits [companies] to decentralize innovation through networks or customers, it also allows them to parcel out more work to specialists, free agents, and talent networks…new talent-deployment models could emerge [and] changes in the nature of labor relationships could lead to new pricing models that would shift payment schemes from time and materials to compensation for results.

The Caution:
This trend should gather steam in sectors such as software, health care delivery, professional services, and real estate, where companies can easily segment work into discrete tasks for independent contractors and then reaggregate it … Competitive advantage will shift to companies that can master the art of breaking down and recomposing tasks.

4. Extracting more value from interactions

Companies have been automating or offshoring an increasing proportion of their production and manufacturing (transformational) activities and their clerical or simple rule-based (transactional) activities. As a result, a growing proportion of the labor force in developed economies engages primarily in work that involves negotiations and conversations, knowledge, judgment, and ad hoc collaboration—tacit interactions, as we call them. By 2015 we expect employment in jobs primarily involving such interactions to account for about 44 percent of total US employment, up from 40 percent today.

The Caution:
Tere is still substantial room for automating transactional activities, and the payoff can typically be realized much more quickly and measured much more clearly than the payoff from investments to make tacit work more effective. Creating the business case for investing in interactions will be challenging—but critical—for managers.

B. Managing capital and assets

5. Expanding automation

Companies, governments, and other organizations have put in place systems to automate tasks and processes [like] forecasting and supply chain technologies…. Now these systems are becoming interconnected through common standards for exchanging data and … this information can be combined in new ways to automate an increasing array of broader activities, from inventory management to customer service.

The Caution:
Automation is a good investment if it not only lowers costs but also helps users to get what they want more quickly and easily, though it may not be a good idea if it gives them unpleasant experiences. The trick is to strike the right balance between raising margins and making customers happy.

6. Unbundling production from delivery

Technology helps companies to utilize fixed assets more efficiently… Information and communications technologies handle the tracking and metering critical to the new models and make it possible to have effective allocation and capacity-planning systems. Amazon.com [has] expanded its business model to let other retailers use its logistics and distribution services [and] independent software developers … buy processing power on its IT infrastructure so that they don’t have to buy their own. Mobile virtual-network operators, another example of this trend, provide wireless services without investing in a network infrastructure.

The Caution:
Companies that make their assets available for internal and external use will need to manage conflicts if demand exceeds supply. A competitive advantage through scale may be hard to maintain when many players, large and small, have equal access to resources at low marginal costs.

C. Leveraging information

7. Putting more science into management

Technology is helping managers exploit ever-greater amounts of data to make smarter decisions and develop the insights that create competitive advantages and new business models. From “ideagoras” (eBay-like marketplaces for ideas) to predictive markets to performance-management approaches… Leading players are exploiting this information explosion with a diverse set of management techniques. Google fosters innovation through an internal market: employees submit ideas, and other employees decide if an idea is worth pursuing or if they would be willing to work on it full-time.

The Caution:
Leaders should get out ahead of this trend to ensure that information makes organizations more rather than less effective. Information is often power; broadening access and increasing transparency will inevitably influence organizational politics and power structures. Environments that celebrate making choices on a factual basis must beware of analysis paralysis.

8. Making businesses from information

Accumulated pools of data captured in a number of systems within large organizations or pulled together from many points of origin on the Web are the raw material for new information-based business opportunities… market imperfections include[ing] information asymmetries and the frequent inability of decision makers to get all the relevant data … allow middlemen and players with more and better information to extract higher [prices] by aggregating and creating businesses around it.

The Caution:
But that sword can cut both ways; today’s aggregators, for instance, may themselves be aggregated tomorrow. Companies relying on information-based market imperfections need to assess the impact of the new transparency levels that are continually opening up in today’s information economy.

McKinsey’s authors are: James Manyika, a director, and Kara Sprague, who is a consultant in McKinsey’s San Francisco office; and Roger Roberts, who is a principal in the Silicon Valley office.

FURTHER READING:
A. Managing relationships

  1. Yochai Benkler, The Wealth of Networks: How Social Production Transforms Markets and Freedom.
  2. Henry Chesbrough, Open Innovation: The New Imperative for Creating and Profiting from Technology.
  3. James Surowiecki, The Wisdom of Crowds.
  4. Eric von Hippel, Democratizing Innovation
  5. C. K. Prahalad and Venkat Ramaswamy, The Future of Competition: Co-Creating Unique Value with Customers.
  6. Don Tapscott and Anthony D. Williams, Wikinomics: How Mass Collaboration Changes Everything.
  7. Richard Florida, The Rise of the Creative Class: And How It’s Transforming Work, Leisure, Community, and Everyday Life.
  8. Daniel H. Pink, Free Agent Nation: How America’s New Independent Workers Are Transforming the Way We Live.
  9. Bradford C. Johnson, James M. Manyika, and Lareina A. Yee, “The next revolution in interactions,” mckinseyquarterly.com, November 2005.
  10. Scott C. Beardsley, Bradford C. Johnson, and James M. Manyika, “Competitive advantage from better interactions,” mckinseyquarterly.com, May 2006.
  11. Thomas W. Malone, The Future of Work: How the New Order of Business Will Shape Your Organization, Your Management Style, and Your Life.

B. Managing capital and assets

  1. John Hagel III, Out of the Box: Strategies for Achieving Profits Today and Growth Tomorrow through Web Services.
  2. Claus Heinrich, RFID and Beyond: Growing Your Business with Real World Awareness.
  3. Jeanne W. Ross, Peter Weill, and David C. Robertson, Enterprise Architecture as Strategy: Creating a Foundation for Business Execution.
  4. “Jeff Bezos’ risky bet,” BusinessWeek, November 13, 2006.

C. Leveraging information

  1. Thomas H. Davenport and Jeanne G. Harris, Competing on Analytics: The New Science of Winning.
  2. John Riedl and Joseph Konstan with Eric Vrooman, Word of Mouse: The Marketing Power of Collaborative Filtering.
  3. Stefan H. Thomke, Experimentation Matters: Unlocking the Potential of New Technologies for Innovation.
  4. David Weinberger, Everything Is Miscellaneous: The Power of the New Digital Disorder.
  5. Hal R. Varian, Joseph Farrell, and Carl Shapiro, The Economics of Information Technology: An Introduction.
  6. Carl Shapiro and Hal R. Varian, Information Rules: A Strategic Guide to the Network Economy.

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