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.”

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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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.

[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!

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.

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.

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.