Consumers' experience with internet access and social media is changing their notions of how they relate to businesses: they expect to play a more active role in shaping the products and services they buy. This shift in expectations raises many questions about whether today's operating practices will continue to succeed. We are seeing some of the leadership, structural and cultural implications, but we anticipate this will be unfolding for a while to come.

1. spring 2012
Ready,
or Not ?

2. A Note From the Authors
Is the combination of internet access and social media hurtling us towards a new 21st century business
model? 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 the
20th century business and organizational models creaking under the stress of these forces while organic
growth for many is elusive.
Wendy Helmkamp, Jon Wheeler and Roy Maurer
Partners, The Clarion Group The Advisors at The Clarion Group have been observing and discussing this rapidly evolving situation and
have come to the conclusion that we have entered into a period of dramatic change which, at a seismic
level, is shifting the fundamental balance of power from businesses to consumers. The consequence: highly
Connect with us:
structured and centralized organizations of today will have to reinvent themselves into open and decentral-
helmkamp@theclariongroup.com ized 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 ways
maurer@theclariongroup.com executives 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 will
Join us on Facebook
keep watching for, experimenting with and discussing ideas and developing practices that work. And we
Join us on LinkedIn will be writing and blogging about those. We hope you will accept our invitation at the end of the article to
join the ongoing discussion and ride with us.
Subscribe to our blog
Long-time readers will notice a shift in the appearance of The Clarion Call. You know we’re always
open to input; let us know what you think.
You may contact us at 860.232.3667
or email partners@theclariongroup.com
–2– © 2012 The Clarion Group, Ltd. All rights reserved.

3. The Emerging Revolution
of Gen-Net Led Value Co-Creation
TM
“It 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 Zuckerberg
ending economic tremors like the Greek debt crisis, more variables to manage, globalization, the need to the 21st Century’s
change at ever faster speeds AND the lightening quick adoption of mobile internet-accessible devices and Henry Ford?
social media. It’s 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 and
to question their relevancy. social media networking and community
building become the dominant economic
Many 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 a
challenge unlike what Baby Boomers have seen before. Yet the demands for growth from the capital markets Will it fundamentally change how value
are unrelenting. The U.S. economy appears stable with some modest encouraging signs, but few companies is created in the way that Henry Ford’s
can wait for the broader economic expansion to drive their growth. Recognizing that historic internal assembly line accelerated the industrial
approaches to enhancing value and driving organic growth are insufficient for the current situation, executives revolution?
almost everywhere are looking for more creativity and better market experimentation to accelerate the
Or will the old ways prevail and with it
discovery 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 out
the 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 may
change. Are the underlying market changes so dramatic they require new leadership mindsets and
give you a view into what the networked
expanded execution capabilities to enable growth? If we are in an era of fundamental shifts, it will test the
consumer-based global economy holds…
ability of companies to adapt rapidly enough to create new value. Will historic centralized product and
service development be sufficient? Or, like nature, which has no long-term vision but an inherent system of in the not too distant future!
experimentation through mutations, must businesses create new levels of sense-and-respond capabilities
to become more adaptive and discover new market value and growth?
Let’s 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 70’s and 80’s, 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 production
for growth in this era
capabilities, manufacturing or people development and yield acceptable long-term results. It was an era
of high complexity, and of 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 90’s 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, production
employed 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 application Many 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 natural Perhaps it will never return to historic levels. More variables to consider, underlying uncertainty about the
environment: www.plexusinstitute.com market’s 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-Creation
The study of Complex Adaptive Systems suggests rapid adaptation occurs when central control gives way to The highly structured
decentralized innovation. Our emerging view is that businesses, as entities in highly complex environments,
organizations of the past
will more successfully create new customer value and grow if they enable a different kind of relationship with
consumers and partners, their agents for innovation: if value creation is not controlled solely by the company are now trying to interface
but 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 unstructured
evaporating.
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 are
seeing 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 highly
structured organizations of the past are now trying to interface with rapidly emerging, highly unstructured,
networked markets that don’t function linearly and don’t innovate with controls or direction from within the
core of the enterprise. Creativity is at the edge, out of control, open and distributed. Business-to-business
and business-to-consumer is rapidly being joined by person-to-person commercial activity, enabled by the
network. In other words, the consumer markets are beginning to function more like nature than the highly
structured industrial complex that emerged in the early 20th century.
Let’s 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 of
where the user maintains the information and determines when and how they will interact. Users/consumers value by companies and their
are accustomed to being in control of their social network experience. It’s a modest step to see how consum-
customer communities in a
ers expect to be in much greater control of their purchasing experience; witness the massive coupon and
promotions blitz being deployed by many companies. This modest step from “social media” to “commercial
network-enabled world.
media” will have a tsunami-sized effect on how markets will function. In the world of innovation and complex
systems, this is a good thing. We should all understand that many of the foundational ways our society and
businesses 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 from
article cited numerous large across all generations. Leaders who are defined by their ability to envision the future, and to dramatically
established companies
that have added Directors
Value Co-Creation Framework
who are in their 20s
to their Boards. Vast and
Growing e r
Market Enabled er eth
s tom Tog
Innovation Cu tion
Value Co-Creation a nd rea
m C
VARIABLES TO CONSIDER
e Fir alue
Th V
in
ip ate
Many r tic
Organization Level Pa
Innovation Balance
Transformation of Power
s
ide
D ec ives
Operations Level m ce
For our thinking on keeping your mind Fir r Re
Innovation T he me
open see our 2006 Insights Article, Few TQM sto
Cu
on our website under Insights & Events
“Mindset Shift at the Heart of Moving Clear Complicated Complex
Forward”
L
Low Moderate High and Epic
DEGREE 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 any
one hand off the steering wheel and welcome its replacement with one hand of their customer, so they can
jointly navigate the value creation process. We call this cadre of 21st century leaders “Gen-Net.”
generation who see
We 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-sharing
Net is comfortable with the wild ride, the unknown, the g-forces, the inversion. They get it, they live it, and with the market, and embrace
they will lead it.
value co-creation.
Consider the following examples of change
in the balance of customer power, with the rise of the network
and rapidly forming digital communities.
1. Consumer Buying Power
You want to buy a 48” flat screen TV. Today you research brands online, looking for the best prices. Then
you go to a retail big box to check out the quality and try to negotiate the price. Ultimately the best price is 1 Community and
available online, so you go home and order your TV. It’s delivered to your home a week later. You got the commerce come together
name 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 what’s available and get insights from others. You visit shifting the balance of
a local electronics “demo center” funded by the product manufacturers. When you return home, you rejoin power towards the
the community and the 10,000 other global members who are committed to buying the same TV in the next
7 days. You then purchase directly from the manufacturer who agrees to a lower price (no middle man to consumer and substantially
pay, 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 better
educated, 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,
2 Community 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,
you’re satisfied with the outcome, even though it took twice as long as expected, required multiple runs to
commerce come
the store for unanticipated materials and tools, and cost 25% more than planned. You decide building one
together 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 you’re 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 he’s considering building a deck,
too. You “friend” him into the deck community; three months later, you’re enjoying a meal on his new deck.
3 Commerce and
3. New Product Development Extends to the Net
Today companies make substantial investments in continuously developing and extending their product
community come together lines. 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 of
of 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 of
owning a small piece of a big idea. Companies monitor the product development community and can offer
to 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 they’ve now essentially
allowed 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 and
create a contest for the best product ideas; R&D just went from 20 people to 2,000.
4. Who Needs an Insurance Agent?
4
Today, when you are looking for a homeowners insurance policy, you contact an agent who represents
one or more insurance carriers. You rely on their experience and judgment to help guide you through the
Commerce and the
application and carrier selection process.
network come together to
Tomorrow, imagine an online insurance-buying community where the fundamental information about buying
homeowners insurance is available along with a standard application accepted by all carriers. If you need shift the balance of power
help, 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 carriers
to bid on your policy. You research the top three bidding carriers for their service level ratings and tell them
the price you are willing to pay for the policy – essentially negotiating where there was no negotiating
before. After some back and forth, one of the carriers agrees to your price and you complete the transaction
online at a substantially lower cost, because there is no sales channel or agent to pay. Every year you can
choose to “rebid” your policy when renewal comes up making sure you get the best market rate.
5. Healthcare – The Way it Should Be
Today, when you have a medical need, you may go online to learn more and you may self diagnose, but
5 Commerce meets
probably you simply make an appointment with your primary physician. The doctor uses the standard evalu- community making medical
ation protocol and personal experience to diagnose your medical issue and determine the best course of access easier and more
action. 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 your
effective – 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 same
What might it take protocols as your physician to guide the preliminary questions, assessment and diagnosis. (On average,
to be successful in this the physician community takes seven years to adopt a new diagnosis protocol, so the network may be
emerging world? more advanced than the physician.) If the diagnosis is simple, you may follow directions or buy an over-
the-counter medication. If it’s more complicated, a physician’s assistant or doctor joins you online to further
■ Don’t fight it: embrace complexity, diagnosis your situation; a specialist can be brought in instantly to discuss the situation, review shared
the network and the rapidly medical records and make the diagnosis. If needed, you go to a physician’s 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 structure of their experiences. The medical provider maintains a virtual connection with you to make sure the im-
as inclusive of the messy external proved health outcome is reached.
network of person-to-person
consumers and communities. Tomorrow is Today
■ Anticipate and reward a culture of Pure imagination or emerging reality? Best Buy is struggling as their big box model is under tremendous
exploration. You’ll be more effective pressure from online offerings. The large home improvement companies are already making enormous
at 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 about
KickStarter.com for online angel investors supporting early stage innovation. Check out United Healthcare’s
leadership from “top down” to
investment in cloud-based applications to enable medical data-sharing among industry players and
“bottom up” to support the innovation
PatientsLikeMe.com to see online patient communities in action.
at the edge of your organization.
■ Quickly prepare for and start to What are people talking about at conferences? The World Innovation Forum topics for their June event
take greater market risks than you include: “The democratization of innovation in an era of accelerating technologies,” “Effective models to
are comfortable with because your shift from the collaborative to the distributed model of innovation” and “From strategy to execution to
business is likely at greater risk customers: the fundamentals of a successful open innovation strategy.”
than you realize.
If you’re still not convinced, look at how the digital community forced Bank of America to rescind a new fee
and Florida Senator Marco Rubio to retract his support for the SOPA legislation – with 3 million petition
signatures within 24 hours. All this points to a rapidly emerging revolution in how commerce is conducted
in the network-enabled, consumer-driven world. For most companies, an unwillingness to share the power
with the consumer could result in a slow decline in their market share followed by free-fall when
mass adoption occurs.
– 10 – © 2012 The Clarion Group, Ltd. All rights reserved.

11. Are You Ready to Shift to the 21st Century? Start with these
No doubt, some of you have been thinking hard about the current dips and turns and have been pursuing fundamental questions
avenues such as engaging with your markets in digital dialogs, couponing, special offerings and maybe
“big data.” But arguably, these activities are still centralized and not truly embracing the shift in the balance ■ Are you satisfied with your current
of power and value co-creation. For others – many others – this kind of futuristic thinking is eye-opening and
growth trajectory? What are the
scary. Leaders have been so focused for the past four years, just dealing with the consequences of the biggest challenges with your current
recession and the tidal wave of operational activity, that many haven’t found the time and space to reflect operating model?
individually and as leadership teams on the person-to-person market revolution. If you are one of these, ■ In what ways might network-enabled
see the side bar for a few fundamental questions to begin to think about. consumers and the notion of value
Bottom 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 to
Companies 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-based
operating model are falling behind. Other, more entrepreneurial organizations are already in the game
■ What are the potential implications
and the capital markets are following. What’s 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 for
shareholders is different than value creation for the consumer and, in the end, the latter is what drives true ■ Are you and your leadership team
growth. If you do see Mark Zuckerberg as the 21st century Henry Ford, then you must quickly get on with investing 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 a
whole new form of transportation is being built! ■ Do you have the right talent who
can shift their mindsets and “share
Some of Our Early Observations and Thinking the steering wheel” to enable
higher levels of sense-and-respond
We are in the early stages of a revolutionary period. Raised in the sunset years of the 20th century
discovery and value co-creation
business model, are today’s 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 today’s leaders
■ What must you, as leaders, do
prepared to think about and approach their businesses differently now? Can they effectively step back
well and do differently to engage
far enough to develop strategies and execution models that embrace the new realities? Or will they be
and prepare your organization to
like those who ignored how the assembly line changed the fundamentals of economic activity in the early compete in this new world?
20th century, cracking their whips, asking their employees to go as fast as they can and riding their
buggies into the sunset?
– 11 – © 2012 The Clarion Group, Ltd. All rights reserved.

12. Join Us on the Loading Platform
For twenty years, The Clarion Group has helped leaders think through their strategic choices, design
organization structures, align cultures and raise organization and executive performance – based on our
The clarion is a musical instrument used to bring people
own leadership experiences, with tools developed by us and garnered from the public domain and through together and solidify communities. Musical instruments
our 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, organizational
communities 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 we
consider to be THE most essential topic of our time, here’s how you play. Think about this roller coaster ride
that we are all on. What from this article resonates with you and what doesn’t? What insight can you share 920 Farmington Avenue
on the topic? What is working, what’s not? What questions would you like to explore? Share your thoughts West Hartford, CT 06107
and join the dialog on our blog: http://theclariongroupltd.blogspot.com. (We are still reachable by phone
or 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 Clarion
has 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 –