1. spring 2012Ready,or Not ?

2. A Note From the AuthorsIs the combination of internet access and social media hurtling us towards a new 21st century businessmodel? Online transactions and social media adoption are rising at stunning rates. What are the implica-tions and, more importantly, where is this heading? Almost every day in our client work, we observe the20th century business and organizational models creaking under the stress of these forces while organicgrowth for many is elusive. Wendy Helmkamp, Jon Wheeler and Roy Maurer Partners, The Clarion GroupThe Advisors at The Clarion Group have been observing and discussing this rapidly evolving situation andhave come to the conclusion that we have entered into a period of dramatic change which, at a seismiclevel, is shifting the fundamental balance of power from businesses to consumers. The consequence: highlyConnect with us:structured and centralized organizations of today will have to reinvent themselves into open and decentral-helmkamp@theclariongroup.comized organizations where consumers participate in the innovation and value creation process.wheeler@theclariongroup.com We offer here our current thinking (at least, what it was at press time) on what is happening and waysmaurer@theclariongroup.comexecutives can engage their organizations in preparing for successfully competing in the 21st century.The implications for leadership, culture, organization design and business models continue to evolve. We willJoin us on Facebookkeep watching for, experimenting with and discussing ideas and developing practices that work. And weJoin us on LinkedIn will be writing and blogging about those. We hope you will accept our invitation at the end of the article tojoin the ongoing discussion and ride with us.Subscribe to our blogLong-time readers will notice a shift in the appearance of The Clarion Call. You know were alwaysopen to input; let us know what you think.You may contact us at 860.232.3667or email partners@theclariongroup.com2 2012 The Clarion Group, Ltd. All rights reserved. 3. The Emerging Revolutionof Gen-Net Led Value Co-Creation TMIt feels chaotic and the world is moving faster and faster. So say our clients. More available information,market uncertainty, continued high unemployment levels, regulatory uncertainty, the prospects of never Is Mark Zuckerbergending economic tremors like the Greek debt crisis, more variables to manage, globalization, the need to the 21st Centuryschange at ever faster speeds AND the lightening quick adoption of mobile internet-accessible devices and Henry Ford?social media. Its like an uncharted, white-knuckled roller coaster ride resulting in an anxiety-driven,low-level headache. At a deep level, many of our clients are feeling very unsettled and some are beginning Will the tidal wave of internet access andto question their relevancy. social media networking and community building become the dominant economicMany companies have survived the economic contraction and, with top line growth elusive, continue to force of this generation?use productivity gains to deliver income. Top line growth is needed, but all of these forces are making it achallenge unlike what Baby Boomers have seen before. Yet the demands for growth from the capital markets Will it fundamentally change how valueare unrelenting. The U.S. economy appears stable with some modest encouraging signs, but few companies is created in the way that Henry Fordscan wait for the broader economic expansion to drive their growth. Recognizing that historic internalassembly line accelerated the industrialapproaches to enhancing value and driving organic growth are insufficient for the current situation, executivesrevolution?almost everywhere are looking for more creativity and better market experimentation to accelerate the Or will the old ways prevail and with itdiscovery of new value. Innovation and collaboration is the mantra just about everywhere. There are declining vitality?instances of brilliant market insight and demand creation, but few companies have a Steve Jobs to figure outthe next great thing. Finding better ways to explore market opportunities is on the minds of most leaders. We offer here our perspectives, grounded in the intersection of complexity theory,We wonder if we are in a normal evolutionary period of gradual change or an era of revolutionary research and our client work, which maychange. Are the underlying market changes so dramatic they require new leadership mindsets and give you a view into what the networkedexpanded execution capabilities to enable growth? If we are in an era of fundamental shifts, it will test the consumer-based global economy holdsability of companies to adapt rapidly enough to create new value. Will historic centralized product andservice development be sufficient? Or, like nature, which has no long-term vision but an inherent system ofin the not too distant future!experimentation through mutations, must businesses create new levels of sense-and-respond capabilitiesto become more adaptive and discover new market value and growth?Lets pause to look back to where we have been before we look forward. 3 2012 The Clarion Group, Ltd. All rights reserved. 4. The Rear View Mirror An Era of Predictability and Linear Thinking Doing business in the 70s and 80s, some of you may remember, felt like build it and they will come.What is the approach The variables to manage were limited and the market conditions were clear and relatively certain. Tradi- tional functional organizations prevailed. Companies could make substantial investments in productionfor growth in this era capabilities, manufacturing or people development and yield acceptable long-term results. It was an eraof high complexity, andof relative clarity. TQM was the vehicle for being sufficiently adaptive to market changes and competition; the zenith of this era was re-engineering and Six Sigma.how is it different than From the mid 90s into the first decade of the 21st century, more variables and higher degrees of uncer-the approaches tainty emerged as the internet unleashed information and creativity, and as communications and entertain- ment integrated and became accessible on mobile devices. Massive new markets for products, productionemployed in the past?and talent opened up in China and India. Businesses became more complicated and leaders began to think more holistically across the value chain, looking for growth and efficiency. Transformation was the vehicle for redesign. Reorganizing to stimulate growth and more complicated matrix organization structures were the norm. These two eras of clear and complicated shared some characteristics. Much was known and linear thinking was often sufficient for problem solving. The ups and downs were more predictable and the ride was not so jarring. Organizations were highly structured and slow to change. Annual planning worked. Individual- ism was pervasive; team performance was often an afterthought. Markets were to be exploited. While companies were focused on better serving customer needs, the company defined the value and the cus- tomer received it. With supportive capital markets, growth occurred with just a few short-term interruptions.For more reading on the applicationMany companies continue to work the process-improvement and transformation approaches to finding new value and driving growth, although with what appear to be lower rates of success. Restoration of growth,of complexity concepts for the health especially in mature economic markets and companies, is not coming easily in the post-recession era.of individuals, families, communities,organizations and the naturalPerhaps it will never return to historic levels. More variables to consider, underlying uncertainty about theenvironment: www.plexusinstitute.com markets future, a deep and long-lasting recession, globalization and digital advances are all propelling businesses to a new reality. The approaches to creating value in the clear and complicated eras appear insufficient for many leaders; they are now immersed in an era of high complexity. What is the approach for growth in this era, and how is it different than the approaches employed in the past? 4 2012 The Clarion Group, Ltd. All rights reserved. 5. The Windshield View The Era of Rapid, Gen-Net Led Value Co-CreationThe study of Complex Adaptive Systems suggests rapid adaptation occurs when central control gives way toThe highly structureddecentralized innovation. Our emerging view is that businesses, as entities in highly complex environments,organizations of the pastwill more successfully create new customer value and grow if they enable a different kind of relationship withconsumers and partners, their agents for innovation: if value creation is not controlled solely by the companyare now trying to interfacebut is shared with the consumer. Digital advances have set the stage for new shared innovation-based rela-with rapidly emerging,tionships with consumers. Our society is becoming more open, willing to share information, interconnected,technically capable, mobile, independent and global; historical boundaries of time and distance are highly unstructuredevaporating.networked markets.One impact of these forces and the changes in consumer relationships is a dramatic rethinking of organiza-tions and how they function to create value and get work done. In our research and work with clients we areseeing macro organizational trends away from hierarchy, control and centralization and towards flexibility,talent and rapidly-forming communities to create value outside the walls of the enterprise. The highlystructured organizations of the past are now trying to interface with rapidly emerging, highly unstructured,networked markets that dont function linearly and dont innovate with controls or direction from within thecore of the enterprise. Creativity is at the edge, out of control, open and distributed. Business-to-businessand business-to-consumer is rapidly being joined by person-to-person commercial activity, enabled by thenetwork. In other words, the consumer markets are beginning to function more like nature than the highlystructured industrial complex that emerged in the early 20th century.Lets think of the phenomenon of Facebook. Approximately one billion users have taken the Facebook-provid-Value co-creation definition:ed personal profile chassis and created a network of digital person-to-person and community relationships The joint development ofwhere the user maintains the information and determines when and how they will interact. Users/consumersvalue by companies and theirare accustomed to being in control of their social network experience. Its a modest step to see how consum-customer communities in aers expect to be in much greater control of their purchasing experience; witness the massive coupon andpromotions blitz being deployed by many companies. This modest step from social media to commercialnetwork-enabled world.media will have a tsunami-sized effect on how markets will function. In the world of innovation and complexsystems, this is a good thing. We should all understand that many of the foundational ways our society andbusinesses function are substantially changing and a new generation of leaders, equipped to lead in this era, 5 2012 The Clarion Group, Ltd. All rights reserved. 6. are emerging. Traditional hierarchical organizations have been historically slow to change and oriented towards linear thinking; they view markets as recipients to be exploited rather than as participants with whom to be engaged in exploration. Leaders of such organizations will have to figure out how to build, migrate to and lead organizations that can thrive in the rapidly-emerging, network-enabled, customer-led revolution of our economic system.A recent Wall Street Journal Gen X and Gen Y are defined principally by time periods. We see a new type of leader emerging fromarticle cited numerous large across all generations. Leaders who are defined by their ability to envision the future, and to dramaticallyestablished companiesthat have added DirectorsValue Co-Creation Frameworkwho are in their 20sto their Boards.Vast andGrowinger Market Enabled er eth s tom Tog InnovationCu tionValue Co-Creationa nd ream CVARIABLES TO CONSIDEReFir alue ThVin ip ateMany r tic Organization Level PaInnovationBalanceTransformationof PowersideD ec ives Operations Level mceFor our thinking on keeping your mind Fir r Re Innovation T he meopen see our 2006 Insights Article,FewTQMstoCuon our website under Insights & EventsMindset Shift at the Heart of Moving Clear ComplicatedComplexForwardLLowModerate High and EpicDEGREE OF UNCERTAINTY 6 2012 The Clarion Group, Ltd. All rights reserved. 7. shift the balance of power from centralized and hierarchical out to their organizations that touch the market. Gen-Net definition:Leaders who view their customers as essential drivers of innovation and value creation. Leaders who can take Leaders from anyone hand off the steering wheel and welcome its replacement with one hand of their customer, so they canjointly navigate the value creation process. We call this cadre of 21st century leaders Gen-Net. generation who seeWe recognize it is unsettling for those who have grown up and operated under the paradigm of centralized the networked future,control and authority; but our client work, research and rapidly emerging market activities reveal that Gen- welcome power-sharingNet is comfortable with the wild ride, the unknown, the g-forces, the inversion. They get it, they live it, andwith the market, and embracethey will lead it. value co-creation.Consider the following examples of change in the balance of customer power, with the rise of the networkand rapidly forming digital communities.1. Consumer Buying PowerYou want to buy a 48 flat screen TV. Today you research brands online, looking for the best prices. Thenyou go to a retail big box to check out the quality and try to negotiate the price. Ultimately the best price is 1 Community andavailable online, so you go home and order your TV. Its delivered to your home a week later. You got thecommerce come togethername of an installer at the store; you give him a call to schedule an appointment. in an advanced way,In the network-enabled world, you start with online research but you also join an online community of poten-tial and recent buyers of similar products. You find out whats available and get insights from others. You visitshifting the balance ofa local electronics demo center funded by the product manufacturers. When you return home, you rejoinpower towards thethe community and the 10,000 other global members who are committed to buying the same TV in the next7 days. You then purchase directly from the manufacturer who agrees to a lower price (no middle man to consumer and substantiallypay, 10,000 guaranteed orders). Your TV is delivered to your home. You make an online appointment with altering the current value-an installer chosen from the community network, based on reference ratings and price. You are bettereducated, make a better selection and have a better price. High ticket consumer product big box stores delivery system.stand vacant. 7 2012 The Clarion Group, Ltd. All rights reserved. 8. 2. Common Interest You want to build a new deck onto your home. Today you look online for sample deck designs, do some drafting and head to a big box home improvement retailer to price it out. You hope for a knowledgeable and interested sales associate, but there are no guarantees. You do your best to collect cost information,2Community and then head home to reassess the design and the time you have to do the work yourself. You leave work early on Friday to pick up the inventory; on Saturday morning, you begin your project. Two months later, youre satisfied with the outcome, even though it took twice as long as expected, required multiple runs tocommerce come the store for unanticipated materials and tools, and cost 25% more than planned. You decide building onetogether in a productive deck in your lifetime is enough.and economical way.In the networked world, you start online, joining a Deck Building community where you find designs, specs and knowledgeable, creative, stimulating people. You select a few possible designs and connect virtually with others who have built similar decks, learning some helpful tips about the materials, tools, skills and time required. You decide youre really interested in just the carpentry work, so you post an online RFP for the outdoor lighting and landscaping work and for the materials. Local contractors bid on the work; local and national retailers bid on materials and tools. You check the bidding contractors references and make appointments for online or in-person interviews. You select the lowest cost retailer to deliver materials and tools all at once or as they are needed. The deck is complete in a month; you do the work you enjoy most; the lower materials cost help pay for the contractor. A friend says hes considering building a deck, too. You friend him into the deck community; three months later, youre enjoying a meal on his new deck.3Commerce and 3. New Product Development Extends to the Net Today companies make substantial investments in continuously developing and extending their productcommunity come togetherlines. This is generally done internally or through acquisition of smaller firms who often are more innovative.to unleash unbridled This approach has historically worked when markets are moving at a manageable pace, but it does typically come with a substantial fixed cost burden.innovation at a fraction In the networked world, new product ideas are spawned out in the network via community platforms ofof the cost. people interested in similar areas. A member of the community offers the kernel of an idea and members begin building on the concept in the virtual space. Engineers begin to size the scope of creating the rapidly evolving product. Entrepreneurs and corporate sales people from around the world begin to envision viable 8 2012 The Clarion Group, Ltd. All rights reserved. 9. geographic and vertical markets. Investors, small and large, enter into a funding arrangement in the hopes ofowning a small piece of a big idea. Companies monitor the product development community and can offerto take a financial stake in the idea and/or use their customer base for a test; when the market test is success-ful, they contract an exclusive arrangement to distribute the product. Others are bidding on the manufactur-ing. The traditional company may still retain resources to do product extensions but theyve now essentiallyallowed the network to become an important source of products while reducing fixed cost outlay on innova-tive new product development. They even put out a kernel of an idea or a market need themselves andcreate a contest for the best product ideas; R&D just went from 20 people to 2,000.4. Who Needs an Insurance Agent?4Today, when you are looking for a homeowners insurance policy, you contact an agent who representsone or more insurance carriers. You rely on their experience and judgment to help guide you through the Commerce and theapplication and carrier selection process.network come together toTomorrow, imagine an online insurance-buying community where the fundamental information about buyinghomeowners insurance is available along with a standard application accepted by all carriers. If you need shift the balance of powerhelp, online text, voice and application-sharing capabilities with a support representative are available.to the consumer.With the application complete and the terms and conditions fixed, you release your application for carriersto bid on your policy. You research the top three bidding carriers for their service level ratings and tell themthe price you are willing to pay for the policy essentially negotiating where there was no negotiatingbefore. After some back and forth, one of the carriers agrees to your price and you complete the transactiononline at a substantially lower cost, because there is no sales channel or agent to pay. Every year you canchoose to rebid your policy when renewal comes up making sure you get the best market rate.5. Healthcare The Way it Should BeToday, when you have a medical need, you may go online to learn more and you may self diagnose, but5Commerce meetsprobably you simply make an appointment with your primary physician. The doctor uses the standard evalu-community making medicalation protocol and personal experience to diagnose your medical issue and determine the best course ofaccess easier and moreaction. If the situation is severe, extensive tests, procedures and medical care may be necessary. All along,medical records are selectively shared and time is consumed as you make appointments. You hope youreffective big time!health plan, if you have one, will cover most of the costs. 9 2012 The Clarion Group, Ltd. All rights reserved. 10. Imagine a world where you enter your symptoms into a network-based application which uses the sameWhat might it takeprotocols as your physician to guide the preliminary questions, assessment and diagnosis. (On average,to be successful in thisthe physician community takes seven years to adopt a new diagnosis protocol, so the network may beemerging world? more advanced than the physician.) If the diagnosis is simple, you may follow directions or buy an over-the-counter medication. If its more complicated, a physicians assistant or doctor joins you online to further Dont fight it: embrace complexity, diagnosis your situation; a specialist can be brought in instantly to discuss the situation, review sharedthe network and the rapidly medical records and make the diagnosis. If needed, you go to a physicians office or a medical facility.developing consumer behaviors.You join a community of those who have dealt with similar medical issues; you get support and the benefit Think of your organization structureof their experiences. The medical provider maintains a virtual connection with you to make sure the im-as inclusive of the messy externalproved health outcome is reached.network of person-to-personconsumers and communities.Tomorrow is Today Anticipate and reward a culture ofPure imagination or emerging reality? Best Buy is struggling as their big box model is under tremendousexploration. Youll be more effective pressure from online offerings. The large home improvement companies are already making enormousat attracting and retaining Gen-Net investments in their technology infrastructures to create digital relationships with their retail customers.leaders.Check out Quirky.com if you want to see a community-based new product development site and Begin to shift your mindset aboutKickStarter.com for online angel investors supporting early stage innovation. Check out United Healthcaresleadership from top down toinvestment in cloud-based applications to enable medical data-sharing among industry players andbottom up to support the innovationPatientsLikeMe.com to see online patient communities in action.at the edge of your organization. Quickly prepare for and start toWhat are people talking about at conferences? The World Innovation Forum topics for their June eventtake greater market risks than youinclude: The democratization of innovation in an era of accelerating technologies, Effective models toare comfortable with because your shift from the collaborative to the distributed model of innovation and From strategy to execution tobusiness is likely at greater riskcustomers: the fundamentals of a successful open innovation strategy.than you realize.If youre still not convinced, look at how the digital community forced Bank of America to rescind a new feeand Florida Senator Marco Rubio to retract his support for the SOPA legislation with 3 million petitionsignatures within 24 hours. All this points to a rapidly emerging revolution in how commerce is conductedin the network-enabled, consumer-driven world. For most companies, an unwillingness to share the powerwith the consumer could result in a slow decline in their market share followed by free-fall whenmass adoption occurs. 10 2012 The Clarion Group, Ltd. All rights reserved. 11. Are You Ready to Shift to the 21st Century?Start with theseNo doubt, some of you have been thinking hard about the current dips and turns and have been pursuingfundamental questionsavenues such as engaging with your markets in digital dialogs, couponing, special offerings and maybebig data. But arguably, these activities are still centralized and not truly embracing the shift in the balance Are you satisfied with your currentof power and value co-creation. For others many others this kind of futuristic thinking is eye-opening and growth trajectory? What are thescary. Leaders have been so focused for the past four years, just dealing with the consequences of the biggest challenges with your currentrecession and the tidal wave of operational activity, that many havent found the time and space to reflectoperating model?individually and as leadership teams on the person-to-person market revolution. If you are one of these, In what ways might network-enabledsee the side bar for a few fundamental questions to begin to think about.consumers and the notion of valueBottom line, many industries will finish this decade looking very different than they did when it started. co-creation affect your industry and your business? (You may have toCompanies that do not re-architect their business may not survive. Executive teams that are not already use some imagination here.)in substantial discussions about how they will design and transition to a value co-creative, network-basedoperating model are falling behind. Other, more entrepreneurial organizations are already in the game What are the potential implicationsand the capital markets are following. Whats Facebook worth, $100 billion? Undoubtedly, there will be for your strategy, structures and culture?lots of financial engineering as industries are rolled up or companies broken apart; but value creation forshareholders is different than value creation for the consumer and, in the end, the latter is what drives true Are you and your leadership teamgrowth. If you do see Mark Zuckerberg as the 21st century Henry Ford, then you must quickly get on withinvesting the time to think about this fast-approaching future?how you are going to build the new version of cars. Who wants to invest in a buggy company when awhole new form of transportation is being built! Do you have the right talent who can shift their mindsets and shareSome of Our Early Observations and Thinkingthe steering wheel to enable higher levels of sense-and-respondWe are in the early stages of a revolutionary period. Raised in the sunset years of the 20th century discovery and value co-creationbusiness model, are todays leaders (most of them Baby Boomers) prepared to make decisions and guide leading to higher levels of growth?organizations that will potentially have little resemblance to what they have known? Are todays leaders What must you, as leaders, doprepared to think about and approach their businesses differently now? Can they effectively step back well and do differently to engagefar enough to develop strategies and execution models that embrace the new realities? Or will they be and prepare your organization tolike those who ignored how the assembly line changed the fundamentals of economic activity in the earlycompete in this new world?20th century, cracking their whips, asking their employees to go as fast as they can and riding theirbuggies into the sunset? 11 2012 The Clarion Group, Ltd. All rights reserved. 12. Join Us on the Loading PlatformFor twenty years, The Clarion Group has helped leaders think through their strategic choices, designorganization structures, align cultures and raise organization and executive performance based on ourThe clarion is a musical instrument used to bring peopleown leadership experiences, with tools developed by us and garnered from the public domain and throughtogether and solidify communities. Musical instrumentsour work with client companies. As a business, we also now face this interesting challenge. combine diverse sounds to create harmonic melodies.For us this symbolizes our commitment to helping We must stay open, learn rapidly and evolve our thinking and toolset businesses build dynamic, sustainable, organizationalcommunities for the future. to continue to be helpful to our clients. A lot of what we have done in the past will still apply, but this revolution is happening so quickly, no one person or organization can keep up with the discovery. So we invite you to climb aboard, put one hand on the knowledge development steering wheel with us and join in a network-based dialog where issues and learning can be shared and developed in an open community of common interest.If you want to join our digital dialog to help create insights and value with other interested peers on what weconsider to be THE most essential topic of our time, heres how you play. Think about this roller coaster ridethat we are all on. What from this article resonates with you and what doesnt? What insight can you share920 Farmington Avenueon the topic? What is working, whats not? What questions would you like to explore? Share your thoughts West Hartford, CT 06107and join the dialog on our blog: http://theclariongroupltd.blogspot.com. (We are still reachable by phoneor email feel free to use whatever channel works best for you.) We are eager for your input on how this If you would like to share this issue of The Clarionhas affected you and how you believe it will impact leaders and organizations today and tomorrow. Call with your friends or colleagues, please direct them to www.theclariongroup.com 2012 The Clarion Group, Ltd. All rights reserved. 12