What can destroy the boundaries of your industry


The hefty tome The Support Economy by Shoshana Zuboff and Jim Maxmin is a challenging but rewarding read, describing in detail the rise of distributed capitalism. Of all the big ideas of the last decade, the concept of business and society being driven by connected individuals and small groups is one of the most powerful, and Zuboff has arguably captured better than any.

From an even broader perspective, the biggest strategic issue in almost every industry today is the erosion of industry boundaries. Every industry is encountering new competitors: from adjacent industries, from start-ups with lower entry thresholds, and from substitutions.

At the same time, the strategic opportunities to stretch beyond your existing positioning have exploded, giving an extraordinary premium to the flexibility to take advantage of these openings.

Zuboff has a nice article in the current issue of McKinsey Quarterly, titled Creating value in the age of distributed capitalism (registration required), summarizing some of her key ideas, focusing on the idea of “mutations” in business and capitalism.

At the end of the article she provides a useful list of 7 circumstances in which mutations can destroy the boundaries of industries:

1. The products or services you offer are affordable to few but desired by many.

2. Trust between you and your customer has fractured. The average person’s trust in business has been in steep decline for the past 30 years, and the distance between what today’s businesses can deliver and what individuals want is only growing. This problem makes all consumer-facing industries—especially financial services, health care, insurance, autos, airlines, utilities, media, education, and pharmaceuticals—particularly vulnerable.

3. Your business model is concentrated, with a high level of fixed costs, a large percentage of which could be distributed, delegated to collaborators, or shifted to the virtual world. Here, too, most existing industries are deeply vulnerable.

4. Your organizational structures, systems, and activities can be replaced by flexible, responsive, low-cost networks. A neighborhood watch, citizen journalists, online peer support, and peer-to-peer reviews and information sharing are all examples.

5. There are hidden assets, outside institutional boundaries, that are underutilized but could replace your fixed costs, add capacity, or add new capabilities.

6. You don’t have all the tangible or intangible assets required to meet your customers’ needs.

7. Your end users have needs and desires that you haven’t imagined and have no way to learn about. Unless you make a strategic commitment to explore I-space, you’ll learn about this vulnerability only when your end users migrate elsewhere. This has already been the experience of executives in industries such as recorded music, newspapers, broadcast news, and travel.

This list provides the meat for a useful strategic exercise for any organization, to examine whether and to what degree each of these apply.

While all of these are significant, it is point 4, about how networks of individuals can replace existing organizational structures, that takes much of my attention. The many applications of crowdsourcing provide examples of this. The other points largely enhance the impact of this devolution of talent into informal structures.

The key point in all of this is that the destruction of the boundaries in your industry is only a bad thing if you’re not equipped to respond. If you are, then it provides amazing opportunities. Organizations need to be ready for the walls to come down all around them.