The document summarizes key points from a forum discussion on innovation and business models. [1] Large companies have achieved great success and scale but are now facing limitations to growth. [2] New models like platforms and ecosystems are emerging that enable mass differentiation, serve global markets at low overhead through partnerships, and represent highly scaled interactions. [3] These new models shift power dynamics and require companies to adopt more open and external approaches to innovation.

1. HYPE User Forum
14/15th June 2012
Haydn Shaughnessy

2. Agenda

3. Global 2000 companies 2012, Source: Forbes
Up $149 trillion assets
8%
Up
$36 trillion revenues
12%
$2.6
Up trillion
11% profit
WE UNDERESTIMATE THE ACHIEVEMENTS OF THE
ENTERPRISE – HUGELY SUCESSFUL WAY OF CREATING
WEALTH.

4. BUT IT HAS HIT A LIMIT
Shareholder returns of larger
firms were 70% below
those of smaller firms over a
10-year period in USA
Source Gregory V. Milano, “Too Big to Succeed?” CFO Magazine, April 29, 2011
THE OVERHEAD GROWS
FASTER THAN THE
BOTTOM LINE

5. Changes in the economy that bring pressures to
innovate
2.The opportunity of the new globally connected
middle class
2. The global innovation race
3. Digital – physical convergence (or-
dematerialization)
4. Disruption in the value chain
5. The loss of oligopoly power

6. The new middle class
The new global middle class creates
massively differentiated needs, and low
cost, good enough goods
900 million – 2
billion people by
2030 = x 3 or x 7
The future is mass differentiation

7. Growth x8 in 2012 Fastest growing social 10,000 x Library of
network, 13 employees Congress photo library by
11.2011 – 14 billion
images
Low overhead
high scale
businesses
ON THE OTHER HAND WE SEEM TO
HAVE INVENTED A NEW FORM OF
ORGANIZATION TOO

8. The new
enterprise
operating model

9. A simple ecosystem model of
business
Information market A new hardware
layer
Apps market
Developer network
Platform
50,000
Android 48 member open 88,000
handset alliance articles on pebble
watch in 48 hours
Strong background in self management

10. ELEMENTS OF THE PLATFORM
1. A software platform has rules of the road
2. A developer or production community signing up to T&Cs not
contracts – low friction scaling – with strong background in self-
management
3. (Semi-) automated ingest to a platform
4. Seamless highly scaled transaction
management
5. Information ecosystem
New leadership role? ATTRACTION,
attracting resources
6. Possibly the reinvention of product
around connectivity
7. EXTRAORDINARY SCALE

11. ECOSYSTEM 1 The Forbes’
Story
Feb 2011 to Feb 2012 Opens potential for
hundreds of new revenue
Tapped into 800 streams
ecosystems
Acquisition of
True/Slant
MONTHLY
UNIQUE
VISITORS

12. ECOSYSTEM 2
Other examples
American Express
Google
Apple
The Guardian
Expedia
3,600 API partners
$137 million revenues in 12 months
$2 billion in sales.

13. Physical product ecosystems

14. Competing ecosystem models
multiple supplier and licensee
partners in fragmented markets
vs
highly disciplined continuum from
hardware to software in standardized
environment

15. Today’s ecosystems
1. Ecosystems are closely related to mass differentiation
2. They gather around a platform – like iTunes, Android,
quirky
3. Represent highly scaled interactions
4. Take place in OPEN environments among peers
5. Power dynamics are totally different from the large
firm

16. AND MASS DIFFERENTATION IS?
The ability of large firms to serve
many micro markets with
relatively increases in overhead cost,
usually through multiple ecosystem
partners, providing exceptional
strategic options management.

17. Why aren’t more companies adopting this model?
1990-92 2000-03 2004-06 2007 - 10
Services Employees The CEO Risk
INTERNALITIES EXTERNALITIES
Transition Transition
point point
A Semantic Analysis of 20 years of business writing in The Harvard Business
Review, source Haydn Shaughnessy

18. The Three Worlds

19. CLOSE UP
Lab-based, driven by Attempts to interpret Ignores the rules and
oligopolies that shape and adapt to the uses multiple
new markets service economy strategies to invade
new markets.
Innovation comes from
multiple, scaled
partnerships

20. Most New Innovation Techniques
Arise in Externalities
Reverse innovation, new forms of
incubation, open innovation, social
media, scouting, corporate venturing,
design thinking, service innovation,
consumerized innovation, data and
analytics, Challenge Driven
Innovation, business model
.
© 2011 Haydn Shaughnessy

21. Managing an extended knowledge pool
Creating an innovation architecture
that encapsulates all elements of innovation
Strategic options building, as
companies develop for what might happen as well
as what they know will happen

22. THE
INNOVATION
ARCHITECTURE

24. Innovation pioneers are
arriving at somewhat the
same point as platform and
ecosystem companies
THE STRATEGIC OPTIONS
PORTFOLIO
DO MORE, PLAN FOR WHAT MIGHT
NOT HAPPEN

25. STRATEGIC OPTIONS MANAGEMENT
Nokia Siemens Networks
We need to find a way
to disrupt ourselves –
in other words ways to
transform.

26. Apple’s Strategic options
2010 iPad Launched, iPhone 4, iTouch 4G, iPod
Nano, 6G iPod Shuffle 4G, iPad iOS 4.0, iPad iOS
3.2 support, iBook App and iBookstore introduced,
Ping social network added, AirPlay added, Wi-Fi
printing support, iTunes Versions 9.0.3 thru 10.1.1
released. Apple TV, MacAir solid state
2011 iPhone 4s, iPad 2, iOS 4.3 and iOS 5 support,
Siri voice recognition, Apple TV 2G support, Mac
App Store launched, iTunes in the Cloud launched,
Wi-Fi Syncing, iCloud services launched, iTunes
Match introduced, iTunes Versions 10.1.2 thru
10.5.2 released

27. In a period of change disruptive cultures are needed
Periodically the complexity paradigm wins out

28. Hack thyself
Facebok algorithms
are highly adaptive,
combining human Generative
and machine
networks; the
business model is
opportunistic
Discretionary Non-discretionaryy
Normative RIM left itself with no
concurrent options – all its
options were stuck in the
planning phase.

29. What gives you discretionary generative power
Is it the product
Is it market position
Is it ideation
Is it the platform?

30. IT IS HUMAN CAPABILITY
The business model
and the human
resource element is
ready for complexity – in
IT dependent sectors

31. WHAT SUPPORTS THIS CAPABILITY?
1. The Platform – innovators have this in
platforms like HYPE
2. Ecosystems – still difficult for large
companies to trust the external environment
3. Strategic options management – being able
to serve differentiated markets and products
4. Belief in a new form of scale

32. Conclusions
The future lies with ecosystems supported by
increasingly scaled and sophisticated platforms
These platforms enable companies to serve globally
differentiated markets in an elastic fashion, holding
overhead down during growth

33. THE END
HAYDN SHAUGHNESSY
Fellow Centre for Digital Transformation,
UCI Irvine
Blogs/forbes.com/haydnshaughnessy
haydn@cogenuity.com