The death of inertia, and the new paths to advantage
There is only one path to sustainable advantage in business: investment. In fact that’s all a business is: a vehicle for investing in something that that earns a profit for those providing the money.
But the 21st century has presented a whole new set of challenges for those engaged in the dance called capitalism.
The dance floor is now moving fast, and getting faster. The environment for business investment has never been static, but rarely in history has it moved as quickly as it is now.
There used to be a time when a business manager could be pretty sure that money spent on a piece of equipment, or a new idea, would still be useful in a few years time. The world was changing but slowly.
Inertia was the chief executive's friend. Consumers were slow to change their habits, governments were even slower.
As a result, those charged with investing their own or someone else’s money could take their time and do some research before carefully making a change.
Not any more. Time is the one thing today’s businesses don’t have.
Jeff Schumacher of Boston Consulting Group explains the four disruptive forces that have completely changed the speed at which businesses now have to move:
1. Computer processing power: in the next three years it is going to double twice.
2. The rapid increase in mobile usage, from 19 per cent of all traffic to today to 70 per cent in three years
3. Wearable devices due to low wattage Bluetooth
4. Big data.
I would add a fifth and a sixth to that: automation and the cloud. Big data and automation are at the centre of the fourth great industrial revolution, and cloud computing has now taken it up a notch.
The first industrial revolution, 250 years ago, was the machine age, the second was steam and the third was a combination of electricity and the internal combustion engine.
We are now in the midst of an explosion in innovation focused around automation and data, founded on the rapid growth of computing power and connectivity.
At the heart of this revolution -- and the root cause of the speed of the speed with which businesses must now respond -- is Moore’s Law, the observation by one of the founder’s of Intel Corporation, Gordon E Moore, that the number of transistors in a dense integrated circuit doubles every two years.
He started out saying it doubled every year, but later changed this to every two years. Let’s settle for eighteen months.
And now cloud computing has introduced a very powerful new element: price reduction.
In essence, cloud computing is simply a more cost effective way of investing in computing power. I’ve seen it called Bezos’ Law after Jeff Bezos, the founder of Amazon: the cost of a unit of computing power reduces by approximately 50 per cent every three years.
The hyper-competitive race for cloud computing supremacy between the likes of IBM and Amazon is adding rapid price reduction to Moore’s Law and creating an exponential increase in the pace of change for businesses.
The challenges and opportunities have never been greater, and those that focus on the opportunities rather than challenges will be the winners.
Each type of business will have its own opportunities, but they can be summarised in three ways: knowledge, connection and efficiency.
The revolution brought by big data, the cloud and automation allows businesses to know their customers, connect with them more easily and in ways that are more in tune with how their customers live, and to do it more efficiently, at lower cost.
Those are today’s Paths to Advantage, as we have called this series. This can and should be a golden age for business, but the pressure to think and act fast will leave the slow movers by the wayside.
Over the next four months, our aim is to ensure that you’re not one of them.