Gaining insights into the services economy

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In my keynote speeches I often ask the audience what proportion of the US economy is services. The majority of people guess far below the correct figure, which is 82%. I often point to the following chart, which illustrates the opening words to my book Developing Knowledge-Based Client Relationships:

“In 1980 the US economy was worth $4.9 trillion, producing 1.3 billion tons of goods. Fast forward 20 years to 2000, and the US economy had almost doubled in size to $9.3 trillion, yet the weight of goods produced had only edged up by a few percent to 1.37 billion tons. The economic activity that accounted for this near-doubling in size of the economy was associated with almost nothing of substance, nothing that you could see. This massive growth in the economy was driven by information, ideas, services, and knowledge—things that weighed nothing.”

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I’ve long held that the future of the economy is in professional services. Almost everything will be become commoditized in a global connected economy. But deep specialist knowledge applied effectively will have rapidly increasing value, so that over the next 18-25 years as the global economy doubles in size, professional services will account for the vast bulk of economic growth.

Despite the massive predominance of services in the economy, study and research of the services sector is massively under-represented. Only recently has activity picked up in the field. One significant initiative launched a few months ago is the Services Research & Innovation Initiative, established by IBM, Oracle, Technology Professional Services Assocation, and Service and Support Professionals Assocation, which intends to increase funding to study and enhance performance in the services sector.

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Technology innovation and making the leap from smaller markets

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The front page of the IT section in today’s Australian Financial Review sports as its largest story a review of our Web 2.0 in Australia event, titled “Start-ups weave future around social web”. It starts off:

“It’s a dreary Sydney afternoon in early June, but social media consultant Ross Dawson couldn’t be happier. He’s surrounded by the cream of the Australian internet start-up community, who are buzzing as they discuss how the next-generation worldwide web will be built.

Mr Dawson’s Web 2.0 in Australia conference on June 6 was a landmark event for Australia’s internet community, bringing together a host of entrepreneurs who had previously only been connected online.

A couple of years ago, this event would not have been possible because there wouldn’t have been enough people to take part.

The numbers of Australian internet start-ups are booming at the moment as local entrepreneurs join the global rush to build web applications and hope to make a fortune along the way.

“I’m amazed at how rapidly they’re coming out at the moment,” Mr Dawson said. “In the last six months, it’s been a really rich scene.””

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Value Networks Masterclass in New Zealand with Verna Allee

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Business and society are founded on networks – networks of communication, people, organizations, infrastructure, trade, and far more. This has always been true, but in our hyper-connected world the fundamental networked nature of our world is coming to the fore. In my book Living Networks I described how these networks are now coming to life. We’ve seen the rising prominence of network partly in how “social networks” has become one of the hottest phrases on the planet, describing the extraordinary phenomena of MySpace, YouTube, Second Life, Wikipedia, and a host of other new tools. Organizational network analysis (ONA) has been adopted as a powerful management tool by many leading organizations. Influence networks are now one of the hottest themes in PR and marketing. Open innovation, the most talked-about development in corporate innovation, is fundamentally based on tapping external networks. Yet one of the most powerful applications of network approaches works at the very highest level – that of the how value flows through these networks.

The concepts of Value Networks were first thoroughly developed by Verna Allee in her book the Future of Knowledge (2003), in which she described how she had been mapping the flows of tangible and intangible value in industry networks. Examples included Cisco’s extended network, value flows in the pharmaceutical industry and an engineering firm, among others. Over the last few years the field has grown rapidly, with now a real critical mass of tools and real-life examples. Organizations such as Cisco, Boeing, SAP, and others are ardent proponents and users of value networks approaches. The Value Networks Cluster brings together practitioners around the world, having run events around the US and Europe, and runs a very active and interesting Value Networks discussion group. Verna, working with Oliver Schwabe and others, has released a suite of Creative Commons-licensed open resources, tools, and applications for value networks analysis. The rapidly broadening understanding of the central role of networks in business, together with the development and maturation of practical tools and methodologies, means value networks approaches are likely to become very prominent in business over the next few years.

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[This diagram was taken from a excellent introductory article by Verna Allee on Understanding Value Networks].

I’ve known Verna since 1997, when she had just published her seminal book The Knowledge Evolution. Over the years we’ve shared many ideas and much thinking on the role of networks, and continuously sought opportunities to work together. Verna goes to New Zealand regularly in her role as Visiting Professor at University of Waikato, and has also been doing work for organizations including the independent government research organization AgResearch. AgResearch have been so enthused by the value networks work that they’ve been doing with Verna that they are keen to share these approaches with the broader community in New Zealand. Verna and I have planned similar workshops together before, so Verna kindly asked me to co-facilitate a workshop with her. Our Value Networks Masterclass will be held this 1-2 March in Hamilton, New Zealand. Full details including the agenda are on the event website. The idea is to make this as practical as possible, moving from the foundational concepts of value networks, through case studies of applying value networks methodologies, to specific tools and methodologies. It will be great to work with Verna on this – please do pass on word if there are people in New Zealand who may be interested!

Reflections on revisiting Japan

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Just back from Japan. The highlight of our two week trip was three days spent in Takaragawa Onsen, which has to be one of the best of the hundreds of hot springs in Japan. It claims to have the largest rotemburo, or outdoor hot spring pool, in the country. It snowed continuously for our three days there, allowing us to bask in the beautiful warm hot water at night and watch the snow quietly cover the mountainside. The cold of the snow on our heads perfectly matched the warmth of the volcanic water gushing out from the hillside. There are few more special experiences. Baby Leda loved it too.

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We spent most of our time in Tokyo. The most striking feature of returning to Japan for me was the refound feeling of affluence after the “lost decade” of no economic growth from the early 1990s. New buildings have sprung up around the Roppongi area and on the city’s fringes, there is continuing land reclamation in Tokyo Bay, and shoppers are busy at upmarket shopping complexes in Omotesando and elsewhere. Yet despite increasing Westernization, Japan still seems not to have changed that much. It is easy to imagine that Tokyo will look and feel much the same in a couple of decades from now. Japanese culture will continue to be passed down through generations. Certainly the structural rigidities of the business system seem barely to have loosened, leaving it indeed largely the “old boy’s club” that Takafumi Horie of livedoor infamy claims it to be. Yet there continues to be world-leading innovation in some areas of technology and business processes. As I’ve written previously, the key challenge for Japan in coming decades is its rapidly falling population, and whether the pace of advances in automation will compensate for this.

Another striking aspect was the massive amount of content produced. Manga and anime are estimated to represent a $6 billion global market, much of it in Japan (where manga represents 40% of all book and magazine publishing), but also with broad international distribution, notably in the US. Magazines are still a flourishing market in Japan. While much Japanese content produced is only likely to be consumed locally, it has already been highly influential on Western culture, and we can expect to see more content repurposed for international consumption. Internet access is a standard feature of mobile phones and plans in Japan, and with speaking on phones discouraged on the trains and subways, many play games or access information on the Net. The early success of DoCoMo provided a platform for a truly wireless culture. While the complexities of Japanese written language were an early drag on the implementation of information technologies, Japan is now as digital as any country. Japanese claim their country and culture to be unique, and they have a good claim to that. Yet Japan will have to balance integrating further with global business in an increasingly interdependent world, at the same time as it retains its extraordinary culture.

The promise and challenges of South Africa

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I’m currently in Johannesburg, just back from two days in a game park, where one of my clients was holding a board strategy offsite. Here many of the contrasts of a country still in transition are evident. Nelson Mandela came to power in 1994, taking the nation from a history of apartheid into a new-found democracy. The country has come a tremendous way. The economy shrank consistently for the last 12 years of apartheid. Economic growth this decade has stayed close to 4%, with a recent revision suggesting the current growth rate is around 5%. While this is still not high for a developing country, it has helped support the emergence of the so-called “black diamonds” – middle-class blacks with disposable income and inclined to spend. Yet inequality remains enormous. A select few have gained enormously through black economic empowerment programs, yet with an unemployment rate of around 25%, many are not seeing the benefits of change. Violent crime has surged over the last 6 months, fed by an influx of battle-hardened former soldiers from across the continent. My driver from the airport showed me his bullet wounds from when he was recently carjacked. The HIV/ AIDS situation is dire, with official figures suggesting over 30% of pregnant women have HIV. Broad dissatisfaction is fueling populist politics and a powerful communist party. There is the real potential for a shift in power that will result in an undoing of much of the last decade’s economic reforms.

So while there has been a world of change in the last 13 years, South Africa is still in the midst of a transition which has a long way to travel. There is tangible excitement about South Africa’s hosting of the World Cup in 2010. The infrastructure development required will boost the economy and employment. More importantly, there will be tremendous pride in being the global center of attention. Connectivity is a major part of the story. Owning a mobile phones is now considered essential, with the poor not forgoing cell phones, but being prepared to spend 25% or more of their income on phone bills. As I’ve written earlier, mobile internet will be the foundation for connectivity for the entire continent. The potential of the country is immense. I hope that promise is fulfilled.

Mobiles leapfrog the fixed internet in Africa

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I’m just back from a quick trip to South Africa, where I am working with a large organization to help develop their long-term corporate strategy. One of the many insights on this fascinating trip was how mobiles are leapfrogging the Internet across Africa. Across the continent, and even in relatively developed South Africa, fixed broadband Internet is difficult to access, expensive, and unreliable. Mobiles have already leapfrogged fixed line telephony across the continent. Research done last year indicated that 85% of small businesses run by black people in South Africa rely solely on mobile phones, and 97% of people in Tanzania have access to a mobile phone compared to 28% for fixed lines. Now phone companies are taking the opportunity to offer mobile data services and internet access. As a GSM-based continent, GPRS and HSDPA (which is very high speed – sometimes called 3.5G) are the core data platforms. MTN, a South African telecoms company with 28 million subscribers across 10 African countries, is already broadly offering data services, with of course little competition from other platforms. Most phones have GPRS capabilities, making data access a core functionality available to mobile users. MTN is using HSDPA to help Internet cafes to set up in townships where fixed Internet access is just a dream. Interestingly, the BBC recently reported that 61% of its international WAP users are in Nigeria, and 19% in South Africa. Of course this partly reflects that WAP is not used greatly in Europe, however it certainly shows that it is a viable technology given internet access being primarily from mobile phones in an emerging economy. Thus in Africa, digital content providers must focus on mobile delivery if they want to access anyone other than a handful of the elite who live in select areas and can afford fixed broadband. Despite its enormous economic and other problems, Africa is becoming a showcase for the potential of the mobile internet.

Will economic growth transcend flattening population? …keynote speech on the long-term future of investment

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Yesterday I did the closing keynote at the PortfolioConstruction conference. The conference, run by Portfolio Construction Forum, was for fund managers and portfolio advisors, covering many of the emerging issues on portfolio analytics, as well as the more interesting asset classes. My role was to pull this all out to the big picture, looking 10-20 years forward at future opportunities for investors. There was probably close to a book’s worth of material in the talk, so I won’t try to summarize it here – I’ll cover some of the issues raised in future blog posts and elsewhere. However I want to share the chart I kicked off my presentation with, which shows the economy over the last four centuries and the next 4-5 decades.

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The historical data in the chart comes from Bradford DeLong, an extremely interesting economist at UC – Berkeley. Brad has compiled a thorough analysis of economic history since the birth of mankind, which provides a good complement to some of the more traditionalist approaches. The most evident point from the chart is the acceleration of both economic and population growth over the last centuries. In the year 2000 world population had grown to 2 ½ times its levels 50 years earlier, while in the same period the economy had grown by a factor of 10, resulting in an unprecedented level of prosperity to the individual. We are now at an inflection point in population growth. The United Nations fairly recently revised its world population forecasts for 2050 downwards to 8.9 billion, from the 9.3 billion they were forecasting earlier. Now it is not just developed countries that have low birth rates, but as developing countries progress from agricultural economies, their birth rates too are rapidly falling. Clearly a substantial portion of economic growth since the second world war has been based on population growth, and the associated demands for infrastructure and consumer goods. Barring extraordinary disasters, we know with a fair degree of accuracy what the population will be in 40-50 years. However there is great uncertainty on whether future economic growth can transcend this flattening in population growth. The swift commoditization of goods and services, driven by globalization, on the face of it makes it more difficult to drive economic growth. Yet the associated shift to a highly modular economy facilitates the servicing of needs, and exploitation of economic opportunities, particularly in shifting many poor people into early middle class. I believe that the pace of absolute economic growth in the next 40-50 years will be significantly higher than the last decades, and that economic growth per capita, as human population eventually stabilizes, will grow at an even higher rate. I’ll expand on all of this a bit later.

The raw data of the global network economy

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For some time now I (and quite a few others) have been talking about the “global network economy”. The best way to understand the way the global economy is in considering the global networks of flows of goods, services, money, people, entertainment, aid, and ideas. Now Professor Miguel Centeno of Princeton University has taken the concept deeper, using network analysis methodologies to study globalization. He has set up the International Networks Archive, which has a fabulous array of data on globalization from a network perspective, much of it in Excel format for those who like going to source for their data and analysis. This is a fantastic resource, and I certainly intend to play around with some of the data available here. Prof Centeno is now using the network analysis and visualization software Netmap (which I’ve previously written about in its intelligence applications) to bring the data to life. Part of the things that you can pick out far more easily in this network-centric view of the world is the interdependencies of the world. Simplistic views of say US and China relationships dissolve in the far more complex global networks in which single relationships are set. These are great tools for politicians, activists, and anyone else seeking to really understand the nature of our inextricably interrelated economic existence.

Keynote on the Future of Global Business at the Harvard Club in New York

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This April 27 I’m doing a lunch address at the Harvard Club in New York City on The Future of Global Business, organized by Claxton Speakers International – description below. Details and registration here. If you’re in the area, please come along and say hi, or feel free to pass on word if people you know may be interested in coming along.

The Future of Global Business

Business is now truly global. Communications technologies and deregulation are creating a world in which there are no boundaries for competition. Manufacturing has already gone to low-cost locations. Now almost-free communication allows legal work, financial analysis, and other professsional work – as well as customer service – to be done anywhere on the planet. Innovations are copied in the blink of an eye. Blogging, podcasting, and internet TV change the rules for media and advertising. The entire planet has become a intensely interconnected hive of business activity.

Yet despite the challenges, there are massive opportunities in this new global world of business. How should individuals, companies, and indeed entire countries, position themselves for success? The answer is in connecting. You must have at least one world-class capability, and then tap into global networks for both suppliers and clients. Those organizations that can create effective collaborative networks will dominate. Those that attempt to stand alone will fall. Today it is still about who you know, but also about how you can create value with your personal networks. In his compelling and energizing keynote, Dawson brings clarity to the unfolding world of global business, and provides specific, actionable strategies for individuals and companies to succeed in the challenging times ahead.

Work culture in China

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Some extraordinary statistics in the March issue of Harvard Business Review, in an article by Gallup executives on what’s happening in China:

% of urban Chinese workers who strongly agree:

– I know what is expected of me at work….34%

– At work I have the opportunity to do what I do best every day…26%

– My supervisor, or someone at work, seems to care about me as a person….26%

– Someone at work encourages my development…23%

– This last year, I have had opportunities at work to learn and grow…23%

– At work, my opinions seem to count….20%

– In the last six months, someone at work has talked to me about my progress….19%

The human resource practices these statistics imply hardly bode well for the development of the Chinese economy. On the other hand, my assistant Myfanwy, who was a temp for several years, says she isn’t surprised by these figures at all, and that you may see similar responses by large segments of the Western workforce. Certainly it is enormously sad, and a great lost opportunity, whenever people feel this way.