Digitalization: The Pharmakon of Open Organizations

The first industrial revolution saw the birth of the idea of an enterprise—the same entity we are familiar with today[1]. The creative crucible of the third industrial revolution is in the process of giving rise to a new form of business. I’m talking about “open organizations.”  In this article, I will introduce three characteristics of these open organizations.

Last week, while I was in Oslo visiting a client, the receptionist at the hotel asked me if I wished to become a member of their “Club Carlson.” I automatically replied, “No, thank you.”

“But, sir, it’s free,” he said, “and on top of that I’ll upgrade your room for free.” I’ll admit, I was seduced, and I agreed to join Club Carlson, just to have a better view from my room. But there was more. The receptionist explained that the next time I need to reserve a room, if I do it directly through the Club Carlson site, then, thanks to this magic key, I will be upgraded automatically, and for free! Wow! So… to what do I owe such a boon?

Club Carlson is, in fact, a survival kit. A kit for surviving what, you might ask? It’s a kit for surviving booking.com. Booking.com is twenty years old this year. But in all honesty, did you know this platform existed ten years ago? No; of course not. Today, however, I would bet that the majority of you use booking.com to reserve your hotel rooms. Booking has become a hub you can’t escape. What happened? When the service first appeared, hoteliers and hotel chains were salivating, because Booking was a synonym for new sources of business. Suddenly, everything was possible. Random Australian tourists could find a little bed and breakfast out in the middle of the Jura Mountains. But that was early in the game. Now that Booking is a hub, every hotel has got to be on Booking to survive, and they must pay for it. And now that every hotel is on Booking, the more visible a hotel wants to be, the more they must pay.[2] Booking.com has captured the consumer connection, which used to be the province of the hotels—and in so doing, it has captured a great chunk of the profit margin that goes along with that relationship. Club Carlson is the hotel’s attempt to reclaim that connection with the customer.

The example of booking.com perfectly illustrates the so-called “platform” strategy that is systematically implemented by digital stakeholders to disrupt a value chain. The interesting thing is that platform strategies are no longer the sole province of digital stakeholders. As we shall see, platform strategies are in fact one of the principal ingredients of a new form of enterprise. Of a new breed of organization. I call them “open organizations”.

Digital as a disruptive trend

As I’ve written in my book Innovation Intelligence[3] and in several articles[4], there are three main trends which are changing the rules of the game for businesses. Digital is one of them. Computerization precipitates the reconfiguration of traditional value chains. Fifteen years ago, the music industry was completely transformed by a digital stakeholder, Apple. Now, we’re talking about the transportation industry, the hotel industry, banking, insurance, and on and on; sectors that are essentially B2C. This is the first wave. But the second wave is coming: the same strategies are beginning to appear in B2B industrial sectors. GE, with its Predix platform, is now deploying the same strategy as Apple did with App Store, but this time with industrial applications[5].

The Open Organization: Toward a Definition

Open organizations are the new norm for businesses. There are three subdivisions. The first subdivision includes businesses that appeared in the digital world around ten to fifteen years ago. Organizations like Google, Facebook, etc. are companies whose entire business is digital. They use a structure and ways of operating that are very different from the enterprises of the old world. For example, compared to an old-world firm of equal size, they have two or three fewer levels of hierarchy. Then you have the second subdivision, composed of recently founded industrial firms; organized like digital companies, they use digital to optimize their overall operations (Tesla, Space X, Local Motors, etc.). Their products or services are not in the digital sector, but they function like digital-sector businesses. Finally, the third subdivision consists of old-model companies which have successfully retrofitted themselves, or which are in the process of doing so. Here we find companies such as GE, which we have discussed in numerous articles.

I would like to be able to propose a precise and definitive definition of the open organization, but as the time is not yet ripe, the definition I shall propose instead is appropriately tentative. An open organization is one which implements the following characteristics:[6] Digital Enabled, Platform Strategy, and Talent on Demand. Below, I will elucidate a few key elements of each of these characteristics. I will go into more depth in each one in future pieces… where I will also introduce other characteristics: System and User Oriented, Aspirational Purpose, etc.

Open Organization: Digital Enabled

All or part of the company’s operations are optimized via digital: client relationships, supplier relationships, industrialization, maintenance, etc. The company doesn’t necessarily provide a digital service or product, but its use of digital techniques has won it significant gains. Perhaps it uses Internet diagnostics as a means of predictive maintenance, or to maximize the utilization of physical assets. In Germany, for example, they’re predicting a 5 to 8 percent gain in productivity in less than ten years, thanks to manufacturing 4.0; this would translate into hundreds of billions of euros of extra earnings.[7]

Open Organization: Platform Strategy

As the booking.com example illustrates, new-paradigm businesses use platform strategies. At this point in my analysis, I see three distinct types of platforms; they are not exclusive, however, because it’s possible to simultaneously implement one, two, or even three of these platform types:

  • Dual-face business model platforms: these are platforms that present a two-pronged business model. The first prong of the business consists of providing (often for free) a service with high added value, in order to capture the user’s personal data. The second prong of this model serves to monetize this information. The most familiar examples are Google and Facebook.
  • Supply-demand platforms: This type of platform creates order out of a formerly incoherent value chain; in other words, these are platforms that corral together a supply with a latent demand and allow an asset to be used at maximum efficiency. Well-known examples include Airbnb, Uber, etc.
  • Infrastructural development platforms: This type of platform allows some users to develop applications (while allowing others the chance to buy them, should they so choose). The most well-known example is Apple’s App Store. Apple provides developers with an infrastructure—a development environment—which allows them to do the development work instead of Apple. A few hundred thousand[8] developers rely on Apple’s Application Programming Interface to profit from Apple’s data and devices and develop a few million applications that do anything and everything. Apple gets paid by taking a commission on the sale of applications. The industrial version that’s beginning to emerge is GE’s Predix, the first App Store tailored to the industrial market.[9]

Open Organization: Talent on Demand

The third characteristic trait of open organizations is the idea of Talent on Demand. Indeed, the businesses of the new world have honed the capacity to mobilize both in-house and external talent where it’s needed, for the length of a project. The example of DARPA is edifying[10]—but there are many others. New-paradigm businesses have instituted structures and processes that allow them to gather the best talents around their projects, whether these talents come from within the organization or from without. This certainly poses some contractual challenges (husbanding intellectual property, for example; guarding company secrets, etc.), but above all it poses organizational questions: How do you identify and mobilize talent for use as needed? How do you create trust on demand? How do you spark the collective intelligence you need when you need it? What new work spaces does this new way of working require? These new-paradigm businesses, although they don’t yet have all the answers, are hard at work on solutions. At the same time, the number of platforms that allow companies to mobilize talent on demand—over a system of highly varied verticals—has truly exploded. Some have become industry standards (Freelancer, UpWork, etc.). But this will be the subject of a future article.

Digital : Pharmakon of the Open Organization

To sum it up: I see digitalization as a pharmakon. Which is to say it is both the poison at the source of the disruptions that old-paradigm enterprises are suffering, and the remedy that allows them to transform themselves and adapt and thus live on tomorrow among the survivors. This pharmakon is creating a new form of business enterprise: the open organization, which is identifiable via a suite of defining characteristics, including these three: Digital Enabled, Platform Strategy, and Talent on Demand.

 

 

[1] Before this, there were factories, one could use itinerant labor, certain legal structures regarding labor weren’t in place, etc.
[2] Booking.com forces hotels to offer the cheapest possible room prices to satisfy their clients on the consumer end, while imposing higher commission fees on hotels that want to be listed prominently. This is the model followed by Online Travel Agencies (OTAs).
[3] Innovation Intelligence. Absans publishing (2015).
[4] L’innovation ouverte est morte. Vive l’organisation ouverte. (“The Open Innovation is Dead. Long Live the Open Organization!”) Harvard Business Review France (2016).
[5] Quand la transition digitale menace l’industrie traditionnelle. (“When the Digital Transition Threatens Traditional Industry.”) Harvard Business Review France (2016).
[6] The other characteristic traits will be introduced in future articles ; each of these traits will be the subject of detailed pieces.
[7] “Industry 4.0 : The Future of Productivity and Growth in Manufacturing Industries”, Boston Consulting Group (2015)
[8] Quora
[9] Vincent Champain, bâtisseur de plateformes (“Vincent Champain, Platform Builder”), open-your-innovation.com (2017):
[10] “Special-forces innovation: how DARPA attacks problems”, Harvard Business Review (2013)

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