I truly enjoy reading the thoughts and ideas of people who are willing to challenge conventional wisdom. Umair Haque is one of those people. Founder of Bubblegeneration and director of the Havas Media Lab, his posts are always thought provoking.
The focus of his thesis revolves around the transition from a traditional economy to an “edge economy,” and how that shift requires firms to rethink strategy and advantage. He recently wrote an article that generated a fair amount of discussion. In it, he had this to say about an “orthodox” strategy:
Competitive advantage is fundamentally about making markets work less efficiently. One catastrophically effective way to do that is to hide and obscure information – to gain bargaining power relative to the guy on the other side of the table.
This observation was made in regard to the failure of major corporations in the financial services industry. By building a system in which information was hidden, value couldn’t be accurately assigned. Of course, banks derive their existence from accurately assigning value, thus such a system is fatally flawed.
Haque further suggests that such decay in strategy is not limited to the financial industry. What is the alternative?
There’s only one real answer: rethinking strategy itself. A world of cheap, abundant, always-on interaction, where value is shifting to the edges, demands a fresh understanding of what’s truly strategic and what’s not.
Here’s a quick example. Where orthodox strategy advises hiding information and making things less liquid, what does edge strategy advise? Exactly the opposite: release information bottlenecks and make things more liquid.
Building from Haque’s somewhat abstract thinking, Fred Wilson, a respected venture capitalist, gives a concrete example by first citing Ronald Coase’s essay The Nature of the Firm, which explains why individuals choose to form companies rather than trading bilaterally through a market. As Wikipedia summarizes:
there are a number of transaction costs to using the market; the cost of obtaining a good or service via the market is actually more than just the price of the good. Other costs, including search and information costs, bargaining costs, keeping trade secrets, and policing and enforcement costs, can all potentially add to the cost of procuring something with a firm. This suggests that firms will arise when they can arrange to produce what they need internally and somehow avoid these costs.
Wilson then correlates the two ideas, tying them back to the technology industry:
What Umair is suggesting is that technology, particularly Internet technology, has changed that equation fundamentally. That the transaction and other costs are declining rapidly and the “nature of the firm” must change as well.
A fascinating discussion then emerged in the comments to Wilson’s post. Jeff Jarvis re-blogged his comment, which further expands on the role of technology and its ability to facilitate models that don’t rely on central command-and-control.
As Fred Wilson remarked in the comments:
Maybe we are entering the time of ’social capitalism’
Where the end users control and allocate attention, money, and ultimately power based on a dynamic and ever evolving measure of trust and social good
It may sound impossible, but as Haque noted today:
As economics changes, so must strategy. What was “strategic” yesterday is less and less strategic today.
And that requires us to have strategic imagination: to be able to imagine fundamentally new possibilities for truly strategic behaviour.